Assignment task: Macroeconomics for Global Economy
Q1) What would a central bank that follows a standard Taylor rule do in the following cases:
- Economy enters a recession
- Inflation goes above the inflation target
- Economy overheats
Q2) How does each of the following affect the debt-to-GDP ratio of a country? Please elaborate.
- Being able to borrow at a negative real interest rate
- Positive GDP growth rate
- A large primary deficit
Q3) Country A has a persistent inflation around 20 percent while Country B has a persistent inflation around 30 percent. How much the exchange rate between the currencies of country A and B would change over the next year according to the Purchasing Power Parity condition? Be explicit how you define the nominal exchange rate and which currency appreciates/depreciates.