Author Question: Write down the Fisher equation and IRP relationship for the United States and the United Kingdom. ... (Read 114 times)

neverstopbelieb · **on:** Jun 30, 2018

Write down the Fisher equation and IRP relationship for the United States and the United Kingdom. Using these relationships, how can we determine the link between interest, inflation, and exchange rates? How can a change in U.S.

policy affect this link?

Question 2

The U.S. is probably the most open international market among the industrialized countries. What then does the U.S. have to gain by joining the WTO?

What will be an ideal response?

prumorgan · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

See text for basic relationship. U.S. policy can change the real interest rate or expected inflation in the United States so that the nominal interest rate and exchange rate change.

Answer to Question 2

There are two answers. First, the U.S. exporters stand to gain profitable markets if foreign protectionism in areas of U.S. comparative advantage (e.g., soy) is removed due to WTO efforts. The second is that the WTO offers the U.S. government administration a counterweight to regional and sectoral interests demanding protection. It is always politically easier to bring about more efficient resource allocations if the complaints of the losers may be deflected by the presence of a binding treaty with an international organization (our hands are tied).