QUESTION 7 Suppose the US decides to combat rising prices by reducing its money supply. If the US's foreign trading partners typically experience a J-CUNe, this policy should impact them in the following way: {2- Produce the same result as in the case without the J-Curve. That is, the home current account will improve and home outputwill rise. 0 Result initially in an appreciation of the home currency {E falls). Normally this would lead to a decrease in home output, but with a J-Curve, this will instead lead to an increase in home output since the current account will improve, not worsen. ':2- Initially lead to a decrease in output instead of an increase, since higher interest rates in the US will cause a depreciation of the home currency (E rises). As a result, all foreign goods wili cost more, and the initial effect of the policy will be a worsening of the home current account thereby decreasing home output. Initially lead to an appreciation of the home currency instead ot a depreciation (E falls). For this reason, the current account initially gets worse instead of better, since foreign goods will be cheaper in the home country. As a result. home output will fall