econ3331 international finance

To complete the questions except essay question.

In this problem, you will explore the different effects of changes in money supply under different assumptions regarding the speed of price adjustment. Assume that at the beginning there is no growth in money supply, i.e. money supply is a constant number.

(i) Using figures for both the short run and the long run, show the effects of a permanent increase in the U.S. money supply. Try to line up your figures to the short and long run equilibria side by side. Assume that the U.S. real national income is constant. Assume that prices adjust slowly (ignore the PPP theory). (5%)

(ii) Plot the time paths of your results for the following variables: (4%)

(a) U.S. Money supply

(b) The dollar interest rate.

(c) The U.S. price level

(d) The dollar/euro exchange rate

(iii) What will be the effect of a permanent increase in the U.S. money supply in the exchange rate, if prices are flexible? Follow the monetary approach to exchange rates, i.e., assume that PPP holds. (3%)

(iv) Now consider the case of a permanent increase in the growth rate of the U.S. money supply. What are the effects in the following selected economic variables?

(a) U.S. Money supply

(b) The dollar interest rate.

(c) The U.S. price level

(d) The dollar/euro exchange rate

Explain in detail your findings. Graph the long-run time paths of the variables. (5%)

The another questions and the ppts is attached.