Economics n the exchange rate model with short-run price stickiness, the nominal interest rate decreases immediately if there is a permanent increase in money supply. However, the model of monetary approach to the exchange rate suggests that the interest rate rises when there is a permanent increase in the growth rate of money supply. Explain how the different assumptions in these two models lead to contrasting predictions about the response of interest rates to the money supply. Show the relevant long-run time paths of the interest rate, price level and nominal exchange rate
Economics n the exchange rate model with short-run price stickiness, the nominal interest rate decreases immediately if there is a permanent increase in money supply. However, the model of monetary approach to the exchange rate suggests that the interest rate rises when there is a permanent increase in the growth rate of money supply. Explain how the different assumptions in these two models lead to contrasting predictions about the response of interest rates to the money supply. Show the relevant long-run time paths of the interest rate, price level and nominal exchange rate
Chapter1: Making Economics Decisions
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n the exchange rate model with short-run price stickiness, the nominal interest rate decreases
immediately if there is a permanent increase in money supply. However, the model of monetary
approach to the exchange rate suggests that the interest rate rises when there is a permanent
increase in the growth rate of money supply. Explain how the different assumptions in these two
models lead to contrasting predictions about the response of interest rates to the money supply.
Show the relevant long-run time paths of the interest rate, price level and nominal exchange rate in
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