1.For each problem below, describe the effects on the nominal exchange rate. (15 points)

a. If the European Central Bank decides to pursue a contractionary monetary policy to fight inflation, what will happen to the value of the dollar relative to the Euro?

b. If expected inflation drops in Europe, so that interest rate falls there, what will happen to the value of the dollar relative to the Euro?

c. If a strike takes place in France, making it harder to buy French goods, what will happen to the value of the dollar relative to the Euro?