Use the money market and foreign exchange (FX) diagrams to answer the following questions. This question considers the relationship between the euro (€) and the U.S. dollar ($). The exchange rate is in U.S. dollars per euro, E$/€. Suppose that with financial innovation in the United States, real money demand in the United States decreases. On all graphs, label the initial equilibrium point A. A. Assume this change in U.S. real money demand is temporary. Using the FX and money market diagrams, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. B. Assume this change in U.S. real money demand is permanent. Using a new diagram, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C.

Use the money market and foreign exchange (FX) diagrams to answer the following questions. This question considers the relationship between the euro (€) and the U.S. dollar ($). The exchange rate is in U.S. dollars per euro, E$/€. Suppose that with financial innovation in the United States, real money demand in the United States decreases. On all graphs, label the initial equilibrium point A. A. Assume this change in U.S. real money demand is temporary. Using the FX and money market diagrams, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. B. Assume this change in U.S. real money demand is permanent. Using a new diagram, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The correct answer turned out to be AA and DD will Shift. Now it's asking me to draw new AA and DD lines.
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