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1. What are the effects of the following changes on the exchange rate: a) An increase in the inflation rate in the U.S relative to the Eurozone. b) An increase in labor productivity in the U.S relative to the Eurozone. c) A decrease in the interest rate in the U.S relative to the Eurozone. 2. The Fed is considering to permanently increase the money supply by 4.75 percent this year and estimate that the interest rate will fall by 2.25 percent. What will the effect of this policy be on: a) Short run and long run price level b) Short and long run exchange rate c) The size of overshooting in the exchange rate