3 2. Initially Home economy was in the long-run equilibrium with PH = 50CH. Then, Home central bankpermanently changed the nominal money supply. Because of the change, the price would be 40CH in the long-run.2.a. Consider its short-run effect of the permanent change. Answer how Home real money supply wouldchange: Decrease, Increase or No change, and how the equilibrium exchange rate would change: Decrease,Increase or No change.Real money supply:Exchange rate:2.b. Consider the long-run effect of the change. In the figure of the FX market model, how would the Homerate of return curve and the Foreign rate of return curve shift in the long-run: Leftward, Rightward, or Noshift? (This asks the shifts from the short-run.)Home rate of return curve:Foreign rate of return curve:2.c. Let E* be the equilibrium exchange rate before the permanent change. Let ES and EL be the short-runand the long-run equilibrium exchange rates after the permanent change, respectively. Let ET be theequilibrium exchange rate (in the short-run) if the change were temporary, not permanent. Then, choose thecorrect math symbols among them below.ET (<, =, > ) ESE* (<, =, >) EL

Introduction Initially the price is 50 ch but when the central bank has changed nominal money supply…

2. Initially Home economy was in the long-run equilibrium with PH 50CH. Then, Home central bank permanently changed the nominal money supply. Because of the change, the price would be 40cH in the long- run. 2.a. Consider its short-run effect of the permanent change. Answer how Home real money supply would change: Decrease, Increase or No change, and how the equilibrium exchange rate would change: Decrease, Increase or No change. Real money supply: Exchange rate:

2. Initially Home economy was in the long-run equilibrium with PH 50CH. Then, Home central bank permanently changed the nominal money supply. Because of the change, the price would be 40cH in the long- run. 2.a. Consider its short-run effect of the permanent change. Answer how Home real money supply would change: Decrease, Increase or No change, and how the equilibrium exchange rate would change: Decrease, Increase or No change. Real money supply: Exchange rate:

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 8DQ

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