The Federal Reserve decreases the money supply in the United States causing interest rates to increase.

a. Draw correctly labeled graphs to show how the increased interest rates in the scenario will affect the demand for the U.S. dollar and supply of the EU euro in the foreign exchange market.

b. Based on the scenario, what will happen to the value of the EU euro? Explain. (Make sure you use the concept of foreign financial investment in your explanation.)

c. Based on the changing value of the EU euro in part (B), how would U.S. aggregate demand be affected? Explain.