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question-

Consider the real exchange rate approach. Foreign output increased. At the same time, Foreign central bank changed its nominal money supply so that the price ratio PH/PF would not change. Answer how the real part of the approach would change: Decrease, Increase or No change, and how the monetary part would change: Decrease, Increase or No change? What prediction on E would the approach give us: Decrease, Increase, No change, No clear prediction? Hint: Remember how we derive