The Real Interest Rates and Real Exchanges Rates Are Constant

question 13

Essay

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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