and lower bound & such that = = _. The central bank changes its money supply every time random changes in money velocity cause the exchange rate to reach the upper or lower bound of the target zone to prevent it from straying outside. . Use these assumptions to plot the exchange rate as a function of(t). . Make sure you explain clearly how the presence of the target zone has a stabilizing effect on exchange rate dynamics inside the target zone, i.e., explain why the path of the exchange rate inside the target zone does not coincide with the 45-degree line (t) = v (t). . Why do we say that we can view the functioning of the pre-World War I Gold Standard as the operation of a credible target zone? . Explain how credibility of the central bank's commitment to keep the exchange rate inside the target zone results in capital flows that help the central bank accomplish its goal. . Explain how reduced credibility leads to capital flows that have the opposite effect and can ultimately result in a self-fulfilling crisis of the system by changing the policy tradeoff facing the central bank