Question: I got the correct answer for Q1 and I can guess Q2. But I don't know why. it makes me a little confused. Would you

I got the correct answer for Q1 and I can guess Q2. But I don't know why. it makes me a little confused. Would you mind explain it? Thank you so much!

1. The Santa Clara Fed has lowered the interest rate. What will happen to:

(I)The real interest rate in Santa Clara GOES DOWN

(II) The nominal exchange rate in the short run (The Santa Clara Peso/US dollar)DEPRECIATES

(III)The nominal exchange rate in the long run (The Santa Clara Peso/US dollar) APPRECIATES

(IV)The current account deficit of Santa Clara. DEFICIT SHOULD GO UP

2.The Santa Clara Fed has raised the interest rate. Discuss (briefly), what will happen to:

(a)The nominal exchange rate in the short run

(b)The nominal exchange rate in the long run

(c)The current account deficit of Santa Clara

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