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Suppose the nominal interest rate in North Pogo (in) is higher than the nominal interest rate in South Pogo (is) by 4%. What would the Fisher effect imply about the expected difference in inflation rates between North Pogo and South Pogo, where we denote the expected inflation rates in North and South Pogo as In and Is respectively. What would you expect to be the effect on the exchange rate between and ¥ and $?

Microeconomics, Economics

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