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1. In 1996, Japan experienced relatively slow output growth (1\%), whereas South Korea had relatively...

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1. In 1996, Japan experienced relatively slow output growth (1\%), whereas South Korea had relatively robust output growth (6\%). Suppose the Bank of Japan allowed the money supply to grow by 2% each year, while the Bank of Korea chose to maintain relatively high money growth of 15% per year. For the following questions, Use the general monetary model, where L is no longer assumed constant and money demand is inversely related to the nominal interest rate. You will find it easiest to treat South Korea as the home country and Japan as the foreign country. The bank deposits in Japan pay a 3\% interest rate. Compute the interest rate paid on South Korean deposits. (2point) The question is not available for copy/paste. 2. In the previous question Q1, which country pays a higher real interest rate? (2point)

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