Use the FOREX and money market diagrams to answer the following questions. This question considers the

relationship between the Indian rupees (INR) and the Chinese yuan (CNY). Let the exchange rate be defined

as rupees per yuan ER/C. On all graphs, label the initial equilibrium point A.

1. Permanent Money Shock Use the FOREX and money market diagrams to answer the following questions. This question considers the relationship between the Indian rupees (INR) and the Chinese yuan (CNY). Let the exchange rate be defined as rupees per yuan ER/C. On all graphs, label the initial equilibrium point A. a. Illustrate how a permanent increase in India's money supply affects the money and FOREX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. b. Using your analysis from above, state how each of the following variables changes in the short run (increase/decreaseo change): India's interest rate, China's interest rate, ERC, Epic, India's price level. c. Using your analysis from above, state how each of the following variables changes in the long run (increase/decreaseo change relative to their initial values at point A): India's interest rate, China's interest rate, ER/C, E , India's price level. d. Explain how overshooting applies to the situation analyzed in part a) - d) above. Illustrate how the exchange rate changes over time