Question

In a long run equilibrium, Country A has an interest rate of 10%, whereas Country B has an interest rate of 7%. Real output in each country is growing at 2% per year. The money growth rate in Country B is 6%. Please provide explanations for each point below (show your calculations).

a. Which country has the higher inflation rate?

b. Which country has a higher real interest rate?

c. What is the inflation rate in Country B?

d. What is the inflation rate and money growth rate in Country A?...