# HW2 - Econ 457 Fall 2010 Problem Set II(Due in class on...

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Econ 457, Fall 2010 Problem Set II (Due in class on March 3, 2011) Problems from the textbook: Chapter 14: 4, 5, 10 Chapter 15 1, 3, 6, 9, 12, 18, 19 Chapter 16 1, 4, 5, 7 and the following: 1. Use the money market and FX diagrams to answer the following questions. This question considers the relationship between the Indian rupees (Rs) and the U.S. dollar (\$). Let the exchange rate be defined as rupees per dollar, E Rs /\$. On all graphs, label the initial equilibrium point A . a. Illustrate how a permanent increase in India’s money supply affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C . b. By plotting them on a chart with time on the horizontal axis, illustrate how each of the following variables changes over time (for India): nominal money supply MIN, price level PIN, real money supply MIN/PIN, India’s interest rate iRs, and the exchange rate E Rs/\$. c. Using your previous analysis, state how each of the following variables changes in

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HW2 - Econ 457 Fall 2010 Problem Set II(Due in class on...

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