Hungary's money growth rate is currently 14% and output growth is 9%. Europe's money growth rate is 4% and its output growth is 2%. Also, the world real interest rate is 2%. Use the conditions associated with the simple monetary model (L= constant) to answer the questions below. Treat Hungary as the home country and define the exchange rate as Hungarian forint (Ft) per euro, EFt/

1. Compute the inflation rate in Hungary.
2. Compute the inflation rate in Europe.
3. Compute the expected rate of depreciation of the forint versus the euro.
4. Suppose the Hungarian National Bank decreases the money growth rate from 14% to 12%. If nothing in Europe changes, what is the new inflation rate in Hungary?
5. Show how the policy change in part d at time T affects: money supply M HUN, real money balances M HUN/PHUN, price level P HUN, and exchange rateEFt/.

• Create 4 time series diagrams with time T in the middle that show the before and after growth rates for each variable above on the chart.
• The 4 time series graphs are labeled Home Money Supply, Home Real Money Balances, Home Price Level, and Home Exchange Rate with T(time of policy change) in the middle.