Question
Consider a world with two countries, Thailand and Canada. At a given point in time, there is a temporary decrease in Thailand's money supply. Assume
Consider a world with two countries, Thailand and Canada. At a given point in time, there is a temporary decrease in Thailand's money supply. Assume that nothing in else in the Canadian and Thai economies changes. a) What happens to EB/$, the baht-dollar exchange rate, in both the short-run and longrun? Explain your answer in words and by using whatever figures and equations you find appropriate. b) Is the short-run exchange rate, EB/$, above or below the expected long-run exchange rate? Explain the dynamics of the exchange rate over time with the help of a diagram.
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