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Use the money market equilibrium and Foreign Exchange (Forex) market equilibrium to answer the following questions. In the FX market diagram, the...
b. US Federal Reserve lowers money supply temporarily
i.
What happens to the price level in the short run?
ii.
Show the short run change in the US money market
equilibrium using a diagram.
iii.
Describe the short-run impact on interest rate and
real money supply in the US.
iv.
What happens to the price level in the long run?
v.
Show the long run change in the US money market
equilibrium using a diagram.
vi.
Describe the long-run impact on interest rate and real
money supply in the US.
vii.
What happens to the expected exchange rate?
viii.
Show the short run change in Forex market
equilibrium diagram.
ix.
Describe the short-run impact on the spot exchange
rate.
x.
Show the long run change in Forex market
equilibrium diagram.
xi.
Describe the long-run impact on the spot exchange
rate.
