a) In the Dombusch model, a 20% rise in the domestic money supply Will lead to a 20% rise In the domestic price and therefore a 20% depreciation of the domestic currency to maintain the long run purchasing power parity (PPP). Discuss this statement focusing on short run and long run impacts.

b) Explain how the bond market is the implicit link between the IS and LM curves in the IS-LM model in following cases

i) Increase in budget deficit

ii. Increase in money supply