A consumption smoothing practice question
Its interest rate is 6%, the same as the U.S. interest rate. Its rate of inflation is 5%, the same as the U.S. inflation rate. You expect that the inflation rate in Luta will rise to 8% this coming year, while the U.S. inflation rate will remain at 5%. You expect that Luta’s interest rate will rise to 9% during the next year. ................
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