The US-China relationship is frequently discussed in the media. Here are four facts about the Chinese economy to refresh your memory:

China manages its dollar exchange rate.

China has a US trade surplus.

The Chinese central bank has a significant number of U.S. bills for the treasury.

Chinese individuals are not free to invest their savings in other countries as they wish. Any move away from a managed currency would probably involve a relaxation of these constraints.

Now evaluate the following claims with 3 to 5 phrases each. You should also be free to use graphs or equations if necessary. Your objective is to discuss why the claim is true, partially true or not.

2. Assume that, in the short term, two types of "shock" may cause changes in autonomous investment spending to be different in GDP levels from long-term, full-time (1) changes in autonomous money demand; and (2) changes in autonomous money demand.

Explain how the results of all parts of this question have been achieved (a. through d.). If necessary, you should feel free to use graphs or equations. All parts of this question (a. through d.) should only be analyzed in the short term.

A. A. (9 points) Suppose the Fed sticks to money supply: the Fed will leave the money supply at the preset and targeted level in response to any investment spending or money demand shocks. How will this strategy for money supply affect the output differences from full employment under both types of shocks?