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Part III (7 points) Assume in this part that prices are flexible and PPP holds continuously. Employ the monetary approach to answer the following. Suppose

Part III (7 points) Assume in this part that prices are flexible and PPP holds continuously. Employ the monetary approach to answer the following. Suppose money supply has been growing at the rate of 7% in Home and 0% in Foreign. Home central bank has decided to slow the growth of money supply to 3% (with no change in Foreign money supply. Depict the behavior of the nominal interest rate, the Home price level, and the exchange rate (Home/Foreign) in the following diagrams. Home Home money interest supply rate Home Exchange rate price (Home/Foreign) level

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