1.. Consider the effect of the money supply change on the price and the expected exchange rate. Initiall MS = 500, P = 100 and Ee = 50cu/CF. Then, Home central bank changed the nominal money supply to 550. 1.a. Suppose that the change is only temporary. Answer the price P and the expected exchange rate E. P: E:
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- How would a contractionary monetary policy affect the exchange rate, net exports, aggregate demand, and aggregate supply?1. Consider the effect of the money supply change on the price and the expected exchange rate. Initially, MS = 500, P = 50 and E = 200cw/cr. Then, Home central bank changed the nominal money supply to 450 permanently. La. Answer the values of P and E in the short-run. P: E: 1.b. Answer the values of Pand E in the long-run. P: E:1.. Consider the effect of the money supply change on the price and the expected exchange rate. Initially, MS = 500, P = 100 and Ee = 50CH/CF. Then, Home central bank changed the nominal money supply to 550. La. Suppose that the change is only temporary. Answer the price Pand the expected exchange rate E. P: E: 1.b. Suppose that the change is permanent. 1.b.i. Answer the values of P and E in the short-run. Short-run P: Ee: 1.b.ii. Answer the values of P and E in the long-run. Long-run P: Ee:
- If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decreaseEconomics n the exchange rate model with short-run price stickiness, the nominal interest rate decreases immediately if there is a permanent increase in money supply. However, the model of monetary approach to the exchange rate suggests that the interest rate rises when there is a permanent increase in the growth rate of money supply. Explain how the different assumptions in these two models lead to contrasting predictions about the response of interest rates to the money supply. Show the relevant long-run time paths of the interest rate, price level and nominal exchange rate inConsider the COVID-19 pandemic and the ongoing financial developments for building your arguments for the following question. a. Explain the short-run and long-run effects of the adjustment of the dollar/euro exchange rate following a permanent increase in the U.S. money supply and show those effects on the related diagrams. Suppose the economy starts with all variables at their long-run levels and that output remains constant as the economy adjusts to the money supply change. b.Explain the exchange rate overshooting with the help of the diagrams that you drew for part a. Why is the exchange rate overshooting an important phenomenon? What does it help to explain?
- 1. Write true or false to each on of these affirmations () A devaluation of the exchange rate does not affect the equilibrium of the general aggregate supply and demand model.If the Fed lowers the federal funds rate so that the exchange rate falls, then imports ________ and exports ________. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decreaseUse the money market and foreign exchange (FX) diagrams to answer the following questions. This question considers the relationship between the euro (€) and the U.S. dollar ($). The exchange rate is in U.S. dollars per euro, E$/€. Suppose that with financial innovation in the United States, real money demand in the United States decreases. On all graphs, label the initial equilibrium point A. A. Assume this change in U.S. real money demand is temporary. Using the FX and money market diagrams, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. B. Assume this change in U.S. real money demand is permanent. Using a new diagram, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C.
- Answer the question according to the graph below. Dollar/euro exchange rate, Ee Ese Dollar return Dollar return 2' 2' 4' Expected euro return Expected euro return Ege 3' 1' Ese Rates of return (in dollar terms) R R L(Rg. Yus) L(Rg. Yus) Mus Pis Mis Pis 4. U.S. real money supply Mus Mus Pus P1 US U.S. real money holdings U.S. real money holdings Assume that the U.S. money supply is initially given at M'us, the price level is initially given at PUs, and the equilibrium exchange rate is initially at E's/e. Which of the following is TRUE when the nominal money supply permanently increases from Mus to M²us? Lütfen birini seçin: O A. the money supply increase does not affect exchange rate expectations O B. the dollar depreciates against the euro in the long-run. O C. the real money supply rises from M'us / P'us to M²us / P²us in the short run O D. In the short-run, the dollar's depreciation is smaller than it would be if the money supply increase was temporary rather than permanent.Over the last 10 years, the dollar has depreciated sharply vis-à-vis the euro. Suppose that in the short run the Fed wanted both to defend the dollar (that is, stop its decline and/or cause it to appreciate) and stimulate investment. Can it achieve both of these goals simultaneously through monetary policy? A. Yes, to stimulate investment the Fed will use expansionary policy that will raise interest rates. The higher interest rates will reduce investment into the United States, which will decrease the demand for dollars and cause an appreciation of the dollar. B. No, to stimulate investment the Fed will use expansionary policy that will lower interest rates. The lower interest rates, however, will reduce investment into the United States, which will increase the supply of dollars and cause a depreciation of the dollar. C. No, to stimulate investment the Fed will use expansionary policy that will raise interest rates. The higher interest rates, however, will reduce investment into the…If interest rates in the Philippines suddenly exceeds the China interest rates (and if it does not cause concern about higher inflation there), the Philippines demand for China’s yuan would ____, and the supply of yuan to be exchanged for pesos would ____, other factors held constant. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease