The United Kingdom (home) and the United States (foreign) have a floating ex- change rate regime. The assumptions of the Dornbusch model hold. The Central Bank of the United Kingdom unexpectedly decreases money supply. Explain the reaction of the exchange rate, domestic prices and the domestic nominal interest rate. Differentiate between the short and the long run. Use a graph with the domestic price level on the y-axis and the exchange rate on the x-axis to support your answer. The United Kingdom (home) and the United States (foreign) have a floating ex- change rate regime. The assumptions of the Dornbusch model hold. The Central Bank of the United Kingdom unexpectedly decreases money supply. Explain the reaction of the exchange rate, domestic prices and the domestic nominal interest rate. Differentiate between the short and the long run. Use a graph with the domestic price level on the y-axis and the exchange rate on the x-axis to support your