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Hello could you help with this Question 7 Recall the short-run exchange rate overshooting result that we discussed in class: in response to a permanent
Hello could you help with this
Question 7 Recall the short-run exchange rate overshooting result that we discussed in class: in response to a permanent increase in money supply, the exchange rate in the short run depreciates by more than in the long run. Consider two economies, A and B, that are identical except for the elasticity of money demand to interest rates. In economy A, money demand is highly elastic (a decline in interest rate induces a very large increase in money demand). In economy B, money demand is very inelastic (a decline in interest rate induces a very small increase in money demand). Compare the extent of short-run exchange rate overshooting in economies A and B in response to a permanent increase in money supplyStep by Step Solution
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