Using the Forex Market and Money Market models, indicate the effect of each change listed in the
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Question:
- Using the Forex Market and Money Market models, indicate the effect of each change listed in the first row of the table, sequentially, on the variables listed in the first column. For example, "Expansionary U.S. Monetary Policy" will first cause an increase in the "Real U.S. Money Supply." Therefore, a "+" is placed in the first box of the table. In the next row, answer how "U.S. Interest Rates" will be affected. You do not need to show your work. Note E$/* represents the dollar/foreign exchange rate. Use the following notation:
+ | the variable increases |
- | the variable decreases |
0 | the variable does not change |
A | the variable change is ambiguous (i.e., it may rise, it may fall) |
I Expansionary US monetary policy | II Increase in US price level | III Increase in US real GDP | |
Real US money supply | + | ||
US interest rates | |||
RoR on US assets | |||
Foreign interest rates | |||
RoR on foreign assets | |||
US Dollar Value | |||
E$/* |
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