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The Real Interest Rates and Real Exchanges Rates Are Constant

Question 13

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The real interest rates and real exchanges rates are constant and equal in North Country and South Country. The Fisher equation and purchasing-power parity hold in both countries. If the nominal interest rate is 8 percent in North Country and 10 percent in South Country, do you expect North Country's nominal exchange rate to appreciate, depreciate, or remain the same? Explain.

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From the Fisher equation, inflation is e...

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