Ask Question, Ask an Expert


Ask Business Economics Expert

Calculating the growth rate of output , rate of inflation , exchange rate with the help of Growth Accounting Equation.

Suppose you are given the following information:

Home Foreign
Labour share of income 60% 50%
Technological growth rate (TFP growth) 1.4% 2.2%
Growth rate of capital accumulation 4% 2.4%
Growth rate of labour 5% 3.2%
Growth rate of money supply 6% 4.7%
Percentage change in velocity of money 2% 1.5%

In the problems:

  • All the growth rates are annual growth rates.

• Exchange rate is quoted as the number of units of foreign currency needed to exchange for (buy) one domestic currency unit, eFC/DC.

  • Purchasing power parity holds.

a) Find the growth rate of output in both countries. (Hint: The growth accounting equation).

b) What is the inflation rate in Home? In Foreign?

c) What is the rate of change in the nominal exchange rate? Which currency is expected to appreciate? At what rate? describe.
Now, suppose the government of Home appoints a new governor to the country's central bank. The newly appointed governor believes that deflation would be harmful to the economy and decides to set an inflation target of 2% per year.

d) What should the central bank of Home do to achieve this inflation target? What would be the new growth rate of domestic money supply? describe.

e) Redo part (c) with an inflation target of 2% in Home.
Now, instead of having an inflation target, the newly appointed governor of Home's central bank wants to keep the nominal exchange rate from changing (i.e., it wants to have a fixed exchange rate).

f) Illustrate what should the central bank of Home do to keep the exchange rate fixed? What happens to domestic inflation rate? What would be the new growth rate of domestic money supply?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M919840

Have any Question? 

Related Questions in Business Economics

Assessment task in this assessment students are required to

ASSESSMENT TASK: In this assessment, students are required to demonstrate their ability to apply economic principles learnt in this subject to analysing real-world business operations and evaluate how their long-run busi ...

What is the relationship between economy business and

What is the relationship between economy, business, and society? -6 page essay (includes only ONE page for references,but the cover page is not included in the 6 page requirement) -Double spaced -APA format

Assignmentinstructions1 select an illegal activity and

Assignment Instructions 1. Select an illegal activity and transform/mask its' true purpose with the disguise of a legitimate business operation. In other words, create a start-up business that would be viewed as a legal ...

Cite the sources used to answer this question provide the

Cite the source(s) used to answer this question. Provide the source(s) below your response and apply APA guidelines for references. 1) Class, is it possible for a business to show an accounting profit, but actually earn ...

Allocation and allotments please respond to the following1

"Allocation and Allotments" Please respond to the following: 1. From the first e-Activity, examine and evaluate the disparity of Georgia budget allocation for education and property tax to the various localities. Based o ...

In the united states as in most countries we value the

In the United States, as in most countries, we value the benefits of a free and competitive market. This suggests an interesting question: what if there were to be no Antitrust laws or other regulations on business activ ...

Assignment -consider the following cobb douglas production

Assignment - Consider the following Cobb Douglas production function where Y is maize output, X 1 is labour input, and X 2 is the capital. Data for estimating this equation is given in the Table below. Y = β 0 X 1i β_1 X ...

Free trade and restricted trade - benefits and cost1-2

Free Trade and Restricted Trade - Benefits and Cost 1-2 paragraphs APA format/ no plagarism Using your own words, define both free and restricted trade. What do you feel are the benefits and the cost to having free trade ...

Assessment task descriptiontopicstudents will be required

ASSESSMENT TASK: DESCRIPTION Topic Students will be required to choose a specific enterprise (it should ideally be one with which they are somewhat familiar) and develop a sustainability indicators monitoring system for ...

Assignmentpart idirections please write a paper that is at

Assignment PART I Directions: Please write a paper that is at least two to three pages in length in which you address the questions below. Write your paper in APA format with at least one cited scholarly reference. Revie ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro