Country Alpha and Country Beta are trading partners each with a current account balance of zero. Country Alpha's currency is the dollar, and Country Beta's currency is the euro. (5 points)

1. If inflation in Country Alpha increases while Country Beta's price level stays flat, will it result in a current account deficit, surplus, or no change for Country Alpha? Explain.
2. Draw a graph of the foreign exchange market for the dollar of Country Alpha. Illustrate the effect of the inflation change from part (a) on the value of its dollar compared to the euro of Country Beta.
3. Now if tastes in Country Beta shift toward goods of Country Alpha, what will be the impact on the demand for the dollar of Country Alpha? Explain.
4. Based on part (c), what will be the effect on the value of the dollar of Country Alpha compared to the euro of Country Beta?