2nd year university level questions:
If the interest rate in the US is larger then the interest rate in UK, then the dollar is expected to appreciate compared to the pound? And why?
Also, consider an economy with many monopolistically competitive firms. If those firms face ''menu costs'' in adjusting proces, then even under the rational expectation hypothesis, an expected change in money supply can affect the level of output in the short-run. Is that true? And why?
Lastly, Assume that there is inflation inertia in the Phillips curve augmented with expectations. If a government wants to keep the unemployment rate below the natural level inflation must accelerate over time. Yes?? Why?
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