International monetary economics

Q5 (24 points) Consider again the short-run model described in question 4. Assume, in addition, that the central bank is committed to a fixed exchange rate regime a. (10 points) Suppose that M falls temporarily. Explain what happens over the short run to E, Y, R, MS, and CA. (Submit a typed answer, not handwritten. Maximum of 100 words.) b. (6 points) How are the central bank's transactions in the foreign exchange market in question 5.a) reflected in the balance of payments accounts? (Submit a typed answer, not handwritten. Maximum of 70 words.) C. (8 points) Under a credible fixed exchange rate regime the central bank looses the ability to pursue independent monetary policy. Explain why some countries choose to adopt a fixed exchange rate regime and loose the ability to pursue independent monetary policy. (Submit a typed answer, not handwritten. Maximum of 100 words.)