Question: what would be the answer to both these blanks? Consider the simultaneous equilibrium in the US money market and the foreign exchange market. In this


Consider the simultaneous equilibrium in the US money market and the foreign exchange market. In this problem we will analyze the effect of a decline in the price level in the US. In the US money market, a decline in the US price level will cause the interest rate to The figure on the right shows expected return on euro deposits as a function of the dollar/euro exchange rate (E$/). 1) Using the line drawing tool, draw a line representing the return on dollar deposits. Label this line 'RET- $1 '. 2) Using the line drawing tool, draw a new line on the same graph representing the return on dollar deposits as the US price level falls. Label this line 'RET- $2. Carefully follow the instructions above and only draw the required objects. As the result of this shock, the dollar will narket and the foreign exchange market. e price level in the US. ill cause the interest rate to osits as a function of the do return on dollar deposits. L fall graph representing the ret quired objects. simultaneous equilibrium in the US money market and the foreign exchans m we will analyze the effect of a decline in the price level in the US. mey market, a decline in the US price level will cause the interest rate to the right shows expected retum on euro deposits as a function of the dolle e (E$/) line drawing tool, draw a line representing the return on dollar deposits. Lal line drawing tool, draw a new line on the same graph representing the retu its as the US price level falls. Label this line 'RET- $2. ow the instructions above and only draw the required objects. tof this shock, the dollar will
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