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- Let US be the home country and European Monetary Union be the foreign country. Suppose that the Fed decides to implement temporary expansionary monetary policy.
- What happens in the US money market following the policy change? Explain any changes in the graph.Consider the FX market and the money market diagrams we learned within the asset approach to exchange rate determination and answer the following questions accordingly. Explain when the questions ask you to explain. Do not include graphical illustrations in your submitted answer but feel free to draw them on a paper as they will help you develop your answer.
- What happens in the FX market following the policy change? Explain any changes in the graph.
-What happens to How does the equilibrium spot exchange rate E$/€ change? Why?
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