In the context of the monetary approach to the determination of the exchange rate, what is...

 

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In the context of the monetary approach to the determination of the exchange rate, what is the effect on the price level, interest rate and exchange rate from a permanent contraction in the domestic level of the money supply? How does your previous answer modify if, instead of the level, it is the domestic growth rate of the money supply that contracts permanently? How do your previous answers modify if we drop the assumption of PPP? Finally, how does your previous answer modify if, in addition to the contraction of the level or the growth of the money supply, the relative demand of domestic goods increases? Supplement your answer with a carefully explained diagrammatic analysis. In the context of the monetary approach to the determination of the exchange rate, what is the effect on the price level, interest rate and exchange rate from a permanent contraction in the domestic level of the money supply? How does your previous answer modify if, instead of the level, it is the domestic growth rate of the money supply that contracts permanently? How do your previous answers modify if we drop the assumption of PPP? Finally, how does your previous answer modify if, in addition to the contraction of the level or the growth of the money supply, the relative demand of domestic goods increases? Supplement your answer with a carefully explained diagrammatic analysis.

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As with hich the financial markets trade The purpas of the PPP measure Salution Purchasing pawer par... View the full answer