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Domestic money supply increases permanently

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A permanent change in monetary policy. More precisely, suppose that the domestic money supply increases permanently

(a) Using the real exchange rate model explain the long-run consequences of this policy change.

(b) Using the short-run model, and using the result from (a), explain the short-run consequences of this change policy change.

(c) Explain the adjustment between short-run and long-run equilibrium and show this adjustment graphically.

Reference no: EM131739003

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