What effect a rise in id have on value of domestic currency

Reference no: EM131917702

Problem

1. In the portfolio balance model, what effect will a rise in id have on the value of the domestic currency with a flexible exchange rate? Why? Why would this not be the result in the monetary approach?

2. "An increase in a country's money supply can result in a depreciation of the country's currency that ‘overshoots' its long-run equilibrium level." Defend this statement.

3. What reasons can you suggest to support the standard assumption that asset markets adjust more rapidly to a disequilibrium situation than do goods markets?

Reference no: EM131917702

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