Question

1. How nominal exchange rate is different from real exchange rate?

2. What is the relationship between purchasing-power parity and exchange rates?

3.What is the impact on new housing investment, if there is a decrease in real interest rates? (5 points)

4.What is the impact on the loanable funds market, if the quantity of loanable funds supplied is more than the quantity demanded?

Answer 1

bundle of goods and senices in different countries. independent variable Cice. Change while everything ele 1 ana Mominal exchange rate tells how much foreign carency can be exchanged for a unit of domestic camency, the real exchange rate tells how much the goods senices in the domestic country can be exchanged for the goods and semices in a toreign country. nominal exchang rate is the value of money which is receired in an exchange with another currency. Real exchange rate measures the purchasing power of domestic carenry to the foreisn cumenty pocvailing Depending on he exchange rate where you're traveling, you'll cually be able to buy more when you're in some countries and not nearly as much in others. An economic theory called purchasing pows parity measures there disroep ancie by comparing currencies as though they're a market exchang rates balance the demand and tror international currencies, while ppp exchange rate capture the differences between the cost of time. ibasket of goods supply a giren when changes in interest ratei que viewed Quan remains constant) their effect on real estare. I's. The ralue of any investment is the sum of the keture cash flows from the investment, discounted back to present value. ICS

lower the interest rate the more 2 less appealing As interest rates rise, the value of any future cash frow decrease wein in tum lowers the value of the asser Creal estate property). Another way to look at this at this is that higher retum, which maker any property gives the retum on that specific investment remains unchanged. Weilerising interest rates can reduce the value of future cash-trows, fetuse cash-brows, infration can in tum increase tu value of plysical property. The interest rate is determined on the market for loan able funds. the demana cure for loanable Gunde has a negative slope, the supply came has a positive slope changes in the demand for capital affect the locenable funds market, and changes in the Loanable bunds marker affect the quantity of capital demanded. The desire for more capital means, in tum, a desse for more loanable tunde. similarly a higher interest rates, less capital will be demanded, be са ше more of the capital in question will have negatire not present value. Higher interest mean lei tundeing demanded. demand for loanable tund is downward sloping like the demand for vistually everything eue the lenders supply funds to the loanable tund market general higher interest rates mate the option more cettractive. rates the efore Thus the In lending CS Scanned with CamScanner