a) (4pts) Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of a temporary increase in the European money supply on the dollar/euro exchange rate. Draw graphs, show the shifting of curves and explain why.

b) (8pts) Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of a permanent increase in the U.S. money supply on the dollar/euro exchange rate, in the short run and in the long run. Draw graphs, show the shifting of curves and explain why.

c) (3pts) Based on b), define and explain Exchange Rate Overshooting.