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Us and European Foriegn Exchange Flow chart
Answer: The figure explicate how the money markets of two countries are linked through the foreign exchange market. The financial policy actions by the Fed affect the U.S. market interest rate changing the dollar/euro exchange rate that clears the foreign exchange market. The European System of Central Banks (ESCB) is able to affect the exchange rate by changing the European money supply and interest rate.
To answer the following question, please refer to the figure below. Concentrating only at the lower right quadrant, discuss the effects of a change in U.S. expected inflation.
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