Europe United States Federal Reserve System European System of Central Banks (United States MUS (European money supply) money supply) United States European money market money market Foreign R (Dollar interest rate) exchange market Re (Euro interest Ege (Dollar/euro exchange rate) Which of the following is FALSE according to the figure given above? Lütfen birini seçin: O A. The monetary policy actions by the Fed affect the U.S. interest rate O B. The figure explains how the money markets of two countries are linked through the foreign exchange market. O C. The European System of Central Banks (ESCB) can affect the exchange rate by changing the European money supply and interest rate on euro deposits. O D. The monetary policy actions by the Fed does not affect the dollar/euro exchange rate.

No written by hand solution

In 4 separate graphs, show the evolution of MEU, PEU, RACand EAC/$overtime in response to the permanent decrease in the European money supply. Provide abrief economic interpretation for this behavior in each graph.

Part 4 5 6 Answer all questions from this section. For each question, identify the statement as True,False, or Uncertain, and explain your reasoning  A.1 Following the announcement that the amount of QE intervention by the central bankwill be reduced going forward (also known as Quantitative Tightening), according to theUIP condition, an immediate appreciation of home’s nominal exchange rate would beobserved. A.2 The difference between the slopes of the IS and RX curves depends only on the sensitivityof net exports to the real exchange rate. A.3 Consider a temporary positive inflation shock in a flexible exchange rate regime (with aninflation targeting central bank) and in a fixed exchange rate regime (where there is nopolicy intervention). Assume that both economies converge to a medium run equilibrium.Following the shock, inflation converges to its equilibrium value from above in both cases.A.4 The central bank of a common currency area should not respond to a shock specific toone…