Permanent increase of the domestic money supply

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Reference no: EM131777926

Question: a. In the short run, a permanent increase of the domestic money supply depreciates more the domestic currency relative to the foreign currency than a temporary increase of the domestic money supply.

b. Suppose Thailand is fixing its currency to the US dollar at E_B/ISD = 1. Using diagrams of the money market in Thailand, money market of the USA, and the foreign exchange market explain if the following statement is TRUE or FALSE: After a decrease in the Money Supply in the US (foreign country), the central bank of Thailand has to increase its Money supply to prevent a depreciation of the Thai Baht against the US dollar.

c. Under a floating exchange rate, a fiscal expansion (e.g., an increase in G) crowds out investment and net exports.

Reference no: EM131777926

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