Problem
1. Analyze a transitory increase in the foreign interest rate, R*. Under which type of exchange rate is there a smaller effect on output-fixed or floating?
2. Suppose now that R* rises permanently. What happens to the economy, and how does your answer depend on whether the change reflects a rise in the foreign real interest rate or in foreign inflation expectations (the Fisher effect)?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.