1.According to the trilemma, if the nation of Bulgaria keeps its exchange rate against the dollar fixed and allows capital mobility, what monetary policy options are available to lower unemployment in the short run?Please briefly explain.

2.This question considers how theFxmarket will respond to changes inmonetary policy.For these questions, define the exchange rate as USD per Japanese yen. Please useboth money market and foreign exchange market diagrams to answer the following questions. On all graphs, label the initial equilibrium point 1.

a. Suppose the Federal Reserve Bank permanently decreases its money supply.Please explain what are the short-run (label the equilibrium point 2) and long-run effects (label the equilibrium point C) of this policy.

b. Now, assume that the investors believe what the Fed announced how