Explain what happens to the nominal exchange rate

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Reference no: EM133440660

Assignment:

Explain what happens to the nominal exchange rate, the price level, and the real exchange rate as a result of a permanent change in the real money balances demanded in the long-run.

What happens to both exchange rates:

a) when there is a permanent increase in the real money demand,

b) when there is a permanent decrease in the real money demand.

(Hint: Think of the money demand changes as taking place in the domestic country. There are no changes in the money market of the foreign country.)

Reference no: EM133440660

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