Consider the simultaneous equilibrium in the US money market and the foreign exchange market (as presented in Ch. 4). In this problem we will analyze the effect of a decline in the euro interest rate. Draw a graph to illustrate this change, and use your findings to fill the blanks below. Important: Make sure to type responses as provided in the options (i.e. be careful with misspellings).

Start with the US money market equilibrium. As a result of a decline in the euro interest rate, while all other exogenous variables remain unchanged:

• The US real money supply curve will (enter 'shift right', 'shift left', or 'remain unchanged') .
• The US aggregate real money demand (enter 'shift right', 'shift left', or 'remain unchanged') .
• The interest rate in the US will (enter 'rise', 'fall', or 'remain unchanged') .

When it comes to the foreign exchange market:

• The curve that will be directly affected by the decline in the euro interest rate is the (enter 'return on dollar' or 'dollar return on euro') deposits curve.
• This curve will shift (enter 'right' or 'left') .
• As a result, the dollar will (enter 'appreciate', 'depreciate', or 'remain unchanged') .