True or False: discuss whether the following statements are correct according to the asset approach (use...

 

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True or False: discuss whether the following statements are correct according to the asset approach (use figure 3 to show the reasoning) a. A temporary decrease in home production makes real money balances decrease and, therefore, leads to a depreciation of the local currency. b. A temporary increase in the foreign nominal money supply decreases the domestic real interest rate and, thus, causes the foreign currency to appreciate. c. An increase in the expected future exchange rate has the same effect on the spot exchange rate as a fall of the home money supply. d. A temporary decrease in foreign production leads to a depreciation of the local currency. Figure 3: The money and the forex markets to Money market MS -MD Mo/Po M/P Expected returns FX market Eo to = DR to + AE /E = FR E True or False: discuss whether the following statements are correct according to the asset approach (use figure 3 to show the reasoning) a. A temporary decrease in home production makes real money balances decrease and, therefore, leads to a depreciation of the local currency. b. A temporary increase in the foreign nominal money supply decreases the domestic real interest rate and, thus, causes the foreign currency to appreciate. c. An increase in the expected future exchange rate has the same effect on the spot exchange rate as a fall of the home money supply. d. A temporary decrease in foreign production leads to a depreciation of the local currency. Figure 3: The money and the forex markets to Money market MS -MD Mo/Po M/P Expected returns FX market Eo to = DR to + AE /E = FR E

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