5. The following is the general structure of foreign exchange market and money market. The following...

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5. The following is the general structure of foreign exchange market and money market. The following is based on the asset approach E-E 1) Foreign exchange market; The equilibrium is based on the interest parity condition; R = R* + E 2) Money market is governed by the money demand and money supply.; Mª 0.01 X Y M² = L(R,Y) = -10 x R + 6-a; Given M³ = 900, P = 100, Y = 1,000, R* = 8%, E = 1.1, then what is the equilibrium foreign exchange rate E? 6-b; If money supply M³ increases permanently what is happening the equilibrium foreign exchange rate E? Show the change of the foreign exchage rate by a graph. Moreover explain the overshooting of the foreign exchagne rate. 5. The following is the general structure of foreign exchange market and money market. The following is based on the asset approach E-E 1) Foreign exchange market; The equilibrium is based on the interest parity condition; R = R* + E 2) Money market is governed by the money demand and money supply.; Mª 0.01 X Y M² = L(R,Y) = -10 x R + 6-a; Given M³ = 900, P = 100, Y = 1,000, R* = 8%, E = 1.1, then what is the equilibrium foreign exchange rate E? 6-b; If money supply M³ increases permanently what is happening the equilibrium foreign exchange rate E? Show the change of the foreign exchage rate by a graph. Moreover explain the overshooting of the foreign exchagne rate.

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SOLUTION 6a To find the equilibrium foreign exchange rate E we can substitute the given values into ... View the full answer