Question
Let US be the home country and France be the foreign country. Suppose there is a temporary increase in real GDP in france and everything
Let US be the home country and France be the foreign country. Suppose there is a temporary increase in real GDP in france and everything else is constant.
Consider the FX market and the money market diagrams we learned within asset approach to exchange rate determination and answer the following questions accordingly.
Which schedule(s) shift in the US money market (2 points)?
What happens to the equilibrium US nominal interest rate i$ (2 points)?
Which schedule(s) shift in the France money market (3 points)?
What happens to the equilibrium France nominal interest rate i (2 points)?
Which schedule(s) shift in the FX market (2 points) and why (3 points)?
What happens to the equilibrium E$/ exchange rate (2 points)? Why (3 points)?
How do the values of Ee$/, PFR and PUS each change (2 points each)?
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