Country X has currency C1 and Country Y has currency C2. The nominal exchange rate C2/C1 and GDP deflator P for Country X and P* for Country Y for various years is as follows: Year: 2010; nominal exchange rate: 0.58; P=1.88; P* =3.8. Year 2011; nominal exchange rate: 0.79; P=2.06; P*=3.88. Year: 2012; nominal exchange rate:0.95; P=2.16; P*=3.95. Year 2013; nominal exchange rate 1.13; P=2.22; P*=4.3. Assuming C1 is the domestic currency and the previous year is the base year, find the year in which the real exchange rate appreciation is greatest and calculate the percentage increase.
a)The Year=( )and percentage increase=?
b) Assuming C1 is the domestic currency, an increase in E will cause price of C2 in term of C1 to (?)
c) If the value of e decrease, given that E is increasing, then Country Y would be experiencing a (?) rate of inflation compared to Country X
d) if foreign goods are relatively less expensive compared to the domestic goods and assuming that the nominal exchange rate of the currencies is equity, then there is (?) in the real exchange rate.
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Country X has currency C1 and Country Y has currency C2. The nominal exchange rate C2/C1 and GDP def...
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