Use the money market and FX diagrams to answer the following questions about the relationship between the British pound () and the US. dollar ($). The exchange rate is in US. dollars per British pound, (E g ). We want to consider how a change in the 12 US. money supply aifects interest rates and exchange rates. Each graph is marked with the original equilibrium as point A, where the interest rate is if and the dollar to pound exchange rate is E1. a. Illustrate how a temporary increase in the US. money supply affects the money and FX markets by shifting the appropriate curves. Label your shortrun equilibrium point B. Move point C to indicate the long-run equilibrium point. Money Market Foreign Exchange Market 'iMsZI'Ijglllii iiiilillillliiigfci 2 ._ E :' IA. 5; A on E s .5 3 m: a D 3 'MD' 'FR' M /P E us us $l