Question

I need Number 3 answered and explained please.

Briefly explain using appropriate formulas: How each of the following changes will affect the exchange rate (dollars per euro) according to the monetary approach to exchange rates 1. a. b. c. d. The US money supply increases The EU money supply decreases The US national income increases. The EU national income decreases. How each of the following changes will affect the real exchange rate (the number of US baskets per EU basket of goods/services): 2. a. The relative demand of U.S. products decreases b. The relative demand of EU products decreases How each of the following changes will affect the nominal exchange rate (dollars per euro) according to the real exchange rate approach: 3. a. The relative demand of U.S. products decreases b. The relative demand of EU products decreases c. The US money supply increases

Answer 1

Answer:

3.each of the following changes will affect the nominal exchange rate (dollars per euro) according to the real exchange rate approach as follows:

a.The relative demand of U.S. products decreases:

If the relative demand of U.S. products decrease, then the demand for U.S. dollar also decreases. This would cause the U.S. dollar to weaken.

b.The relative demand of EU products decreases:

If the relative demand of Eu products decrease, then the demand for euro goes down. which causes the currency to depreciate.

c.The US money supply increases:

If the U.S. money supply increases, then the interest rates go down. This will make U.S. a less attractive country to invest in, which puts a downward pressure on the U.S. dollar, so it depreciates.