Question
Throughout this question, consider Brazil as the domestic economy and the U.S. as the foreign country . Don't forget to label the axis, curves, and
Throughout this question,consider Brazil as the domestic economy and the U.S. as the foreign country.Don't forget to label the axis, curves, and points on your graphs.You may want to use the following notation:
MBR: Brazilian money supply
PBR: Brazilian price level
YBR: Brazilian real output (income)
RR$: Brazilian real interest rate
R$US : Dollar interest rate
ER $/$: Brazilian Real/U.S. dollar exchange rate
EeR $/$: Expected future Brazilian Real/U.S. dollar exchange rate
The coronavirus (Covid-19) pandemic has crashed economies around the world. Although the pandemic may last more than expected, for this question, assume its effects are temporary.Using Figure 1 below, analyze theshort-run effectsof a temporary reduction in the Brazilian real output (income). Assume that the Brazilian economy was in equilibrium before the virus hit and that the Brazil's central bank is not planning to change the amount of money in the economy.Briefly explainthe mechanisms to reach a new equilibrium of the Brazilian Real/U.S. dollar exchange rate (ER$/$)
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