3. Instead of a permanent increase in the US money supply, consider a permanent decrease in...

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3. Instead of a permanent increase in the US money supply, consider a permanent decrease in the Eurozone money supply. Looking from the Eurozone's viewpoint, use the money market and FX diagrams in the text, e.g., 15-12, to create your own graphs showing the following: (20 pts.) a. Illustrate the effects on the money and FX markets, showing the new short-term and long-term equilibrium points. b. Plot charts over time (similar to 15-13) that show the changes over time for nominal money supply, the price level, real money supply, the interest rate and the exchange rate from the view of the Eurozone. Which variables increase, which decrease and which remain the same over time? 3. Instead of a permanent increase in the US money supply, consider a permanent decrease in the Eurozone money supply. Looking from the Eurozone's viewpoint, use the money market and FX diagrams in the text, e.g., 15-12, to create your own graphs showing the following: (20 pts.) a. Illustrate the effects on the money and FX markets, showing the new short-term and long-term equilibrium points. b. Plot charts over time (similar to 15-13) that show the changes over time for nominal money supply, the price level, real money supply, the interest rate and the exchange rate from the view of the Eurozone. Which variables increase, which decrease and which remain the same over time?

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a Effects on the Money and FX Markets In the money market diagram a permanent decrease in the Eurozo... View the full answer