considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth rate is currently 4% and its inflation rateis 2%. Canada's money growth rate is 6% with 3.25% inflation rate. The world real interest rate r* is 0.75%. For the following questions, use the conditions associated with the general monetary model. Treat Mexico as the home country and define the exchange rate as Mexican pesos per Canadian dollar, Epeso/C$
a) Calculate the growth rate of real income in Mexico gM and in Canada gC
b) Calculate the nominal interest rate in Mexico iM and in Canada iC
c) Calculate the expected rate of depreciation in the Mexican peso relative to the Canadian dollar. Is the peso appreciating or depreciating against the Canadian dollar?