1) The soaring US debt and the decline in the credit rating of the US economy have increased distrust in the US dollar among global traders of currencies. What do you believe will happen to the value of the euro as a competitive currency to the dollar? Why? Use the demand and supply for domestic assets curves to explain and show what will happen to the equilibrium exchange rate of the euro.

2) Use the demand and supply for domestic assets curves to predict what would happen to the exchange rate of the pound in the short run and the long run if the British government prints money to reduce unemployment.

3) Assume that the required reserve ratio is 10 percent, currency in circulation is $500 billion, checkable deposits are $1000 billion and excess reserves total $1 billion.

a) Find the M1 money multiplier.

b) If the FED increases its discount loans to the banking system by $100 billion, find the final increase in money supply (M) using the money multiplier.

c) Assume there is no currency in circulation held by the public and no excess reserves held by banks (both are equal to zero), final the final increase in money supply using the simple deposit multiplier