QUESTION 14

1. Consider the model of long run exchange rate determination developed in class. There are two countries, the US and Japan. Prices are perfectly flexible. Determine the effects of the following events on the US exchange rate with Japan. Japan increases its money supply by twenty percent (0.20). The US is the home country.

   		0.10
   		0.20
   		-0.20
   		0.15

2. There is economic growth of seven percent (0.07) in the US. At the same time the US increases the money supply by twenty percent (0.20).

   		-0.10
   		0.10
   		0.13
   		0.08

3. Credit cards are legalized in Japan. The demand for money (L) falls by ten percent (0.10).

   		-0.10
   		0.10
   		-0.15
   		0.08

4. President Biden increases the US deficit by ten percent (0.10).

   		0.10
   		-0.10
   		0.00
   		0.15