1. Suppose that the European Central Bank increases money supply in EU, i.e., there is an increase in MEN- Use the real exchange rate model to determine the impact of this policy on the Canadian economy. (a) Start by considering output markets. What is the effect of an increase in money supply in EU on output markets and1 hence1 on the real exchange rate between Canada and EU? Explain. (b) Next1 consider the Canadian and EU money markets. What is the effect of an increase in money supply in EU on the money market equilibrium in EU and in Canada? Explain. (c) Using your answers to (a) and (b) explain what is the effect of this policy change on the nominal exchange rate betweeu Canadian dollar and Euro (i.e. the eect on Ewe) (d) Compare predictions of this model with predictions of the model based on PPP