Suppose a country decides to use a short term increase in the money supply to raise output It the country typicaly experiences a -curve, this pol cy should: A. 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 outout since the current. account willimprove, not worsen . Produce the same result as in the case without the J Curve. That is, the home current account will improve and home output willise C. Initially lead to an appreciation of the home currency instead of a depreciation (E falls). For this reason, the Current account initially gets worse instead of better, since fore en goods will be cheaper in the home country As a result, home output will fall. D. Initially lead to a decrease in output instead of an increase, since the increase in the money supply will cause a depreciation of the home currency (t rises). As a result, all foregn goods will cost more, and the initial effect of the policy will be a worsening of the home current account thereoy decreasing home output

Suppose there is a decrease in the nominal interest rate in Europe, due a permanent increase the euro money supply. Which best describes what will happen in the United States in the short-run? A. Initially, the value of the euro will fall relative to the dollar. Output will then fall in the US due to a decrease in the US current account, and nominal interest rates in the US will rise due to the fall in US income/output. D. Initially, the Value of the euro will rise relative to the dollar. Outout will then fall in the US due to a decrease n the US current account, and the decrease in output will lower US interest rates. C. Initially, the value of the euro will fall relative to the dollar. Output/income will then fall in the US as US exports to Europe will fall, due to the fact that the fall in the exchanze rate makes European goods less expensive relative to Us goods. D. Initially, the value of the euro will undershoot its long-run, thereby causing US interest rates to fall in order To maintain interest parity. Output will then rise in the US due to lower interest rates as well as due to the increase in purchasing power of the Us dollar E None of the above