Now assume that commencing at time t = 1, the Australian central bank announces an immediate...
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Now assume that commencing at time t = 1, the Australian central bank announces an immediate increase to the (continuous) growth rate of the money supply, so that μ = 0.1 in Australia. Prices are fully flexible. Draw four graphs (including numerical values on axes) covering the period t=0 through t = 2 that show: a) (2 points) The Australian log money supply, InM; and b) (3 points) Australian log real money balances and nominal interest rate; and c) (2 points) The Australian log price level; and d) (2 points) The log exchange rate InSAUD/USD e) (4 points) Write an intuitive explanation for why there is a discrete jump in several of these graphs. Now assume that commencing at time t = 1, the Australian central bank announces an immediate increase to the (continuous) growth rate of the money supply, so that μ = 0.1 in Australia. Prices are fully flexible. Draw four graphs (including numerical values on axes) covering the period t=0 through t = 2 that show: a) (2 points) The Australian log money supply, InM; and b) (3 points) Australian log real money balances and nominal interest rate; and c) (2 points) The Australian log price level; and d) (2 points) The log exchange rate InSAUD/USD e) (4 points) Write an intuitive explanation for why there is a discrete jump in several of these graphs.
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