Question

Explain how permanent shifts in national real money demand functions affect real and nominal exchange rates in the long run.

Answer #1

**Solution -**

The exact change in real money demand does not recognize the
long-term real exchange

Since this being a monetary component. It does not even notice the
nominal interest rate

Long term R is determined by the actual interest rate and the rate
of entry (growth rate)

Price, which is O X D)

. As a result, long-run price levels will be reduced to keep
R-unchanged.

Accordingly o EUS=EU = QUS=EU PUS= PEU The long-term price level
will make PUS nominally

The exchange rate was reduced. Therefore, due to the demand for
real money, the actual exchange will occur

Unchanged and nominal appreciation rates.

Explain how permanent shifts in national real money demand
functions affect real and nominal exchange rates in the long
run.

1. Use the money market and foreign exchange (FX) diagrams to
answer the following questions. This question considers the
relationship between the euro (e) and the U.S. dollar ($). Let the
U.S. be “Home” and the European Monetary Union (EMU) be “Foreign”.
Let the exchange rate be defined as U.S. dollars per euro, E$/e.
Assume, for simplicity, that European money supply, M∗ , liquidity
preferences L ∗ , price level P ∗ , nominal and real interest
rates, i ∗...

2. If the price level rises how does this affect the nominal
money supply.How does this affect real money supply.so question is
Fully explain your reasoning. What will shift the real money demand
curve and why? (5 pts.)

According to classical macroeconomic theory, changes in the
money supply affect
nominal variables and real variables.
nominal variables, but not real variables.
real variables, but not nominal variables.
neither nominal nor real variables.
The sticky-wage theory of the short-run aggregate supply curve
says that when the price level rises more than expected,
production is more profitable and employment rises.
production is more profitable and employment falls.
production is less profitable and employment rises.
production is less profitable and employment falls....

How each of the following changes will affect the nominal
exchange rate (dollars per euro) according to the real exchange
rate approach:
a.The relative demand of U.S. products decreases.
b.The relative demand of U.S. products decreases.
c.The US money supply increases

The neoclassical dichotomy states that in the long run,
real quantities do not affect nominal quantities
nominal quantities do not affect real quantities
monetary policy influences interest rates and output
wages are fixed in the short run

Suppose there is a reduction in aggregate real money demand,
that is, a negative shift in the aggregate real money demand
function. Trace the short-run and long-run effects on the exchange
rate, interest rate, and price level. Explain.

How the following variables affect Exchange Rate
Forecasting:-
1- Money supply
2- Growth
3- Inflation rates
4- Nominal interest rates
5- Balance-of-payments

Please explain the difference between the nominal and real
interest rate in the short-run and the long-run. How and why does
the quantity theory help us understand the relationship between the
money supply, interest rates and inflation? How and why are nominal
interest rates so low in the U.S. today? Please all the tools at
your disposal to demonstrate your understanding of the market
today.

What’s differences and similarities between Nominal and Real
Exchange rates?

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