6. (Asset Approach to the Exchange Rate). Suppose there is a permanent decrease in the Canadian money supply.

(a) With the aid of a diagram, representing the money market and the foreign exchange market, trace the short-run and long-run effects on the spot exchange rate E. Briefly explain your results.

e(b) In separate diagrams show the time paths of the price level P, the interest rate R and the spot exchange rate E as they adjust in the short-run and the long-run to the new lower Canadian money supply.