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Question 3. This question analyzes the effect of a permanent increase in home money supply in the short-run and in the long-run. Within this framework, explain exchange rate overshooting. Use four different graphs to explain the changes in the nominal interest rate (i), real money balance (M/P), price level (P), and exchange rate (E) in the short-run and in the long-run. Start with the following graph. Justify all changes in the variables. (40 points) (a) Home Money Supply, M 1. Money supply increases. M Mus Mus Time