1. Assume that real interest rates around the world are3% and that PPP and the Fisher effect both hold. If inflation in Russia is 10% and inSwitzerland it is 2%, and GDP growth rates are 2% in both...

1. Assume that real interest rates around the world are3% and that PPP and the Fisher effect both hold. If inflation in Russia is 10% and inSwitzerland it is 2%, and GDP growth rates are 2% in both countries,a. What will happen to the ruble/Swiss franc exchangerate over the next year?b. What are the nominal interest rates in Russia and Switzerland?c. How fast is the money supply growing in Russia and Switzerland? [6 points]1. Use Balassa-Samuelson theory to fill in the missingvalues in the following tableUS Bangladesh Hourly wage $25 80 takas Hourly output, traded good 5 1 Hourly output, nontradedgood 4 3 Local currency price of Traded good Non traded good Market exchange rate PPP conversion rate (CB/C$) (assume traded good is 20% of total)If Bangladesh’s per capitaincome is 14,000 takas, how much is that in dollars converted at the marketexchange rate?How much converted usingPPP?What is the dollar price ofthe nontraded good in Bangladesh, converted using the market exchange rate? Briefly explain yourcalculations. The Fed’s target inflation rate is 2%, thereal interest rate is 3%, full employment occurs when the unemployment rate is4.5%, and the weights on inflation and GDP in the Taylor Rule equation are both0.5. Suppose the inflation rate is 1%and the unemployment rate is 7%. [10points]a. What is theequation for the Taylor Rule?b. What isOkun’s Law?c. According tothe Taylor Rule, what interest rate should the Fed set?d. If the ECB’s interest rate is 2%, accordingto the interest parity condition, by how much and in which direction will thespot price of a euro in dollars change over the coming year?