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Explain how permanent shifts in national real money demand

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

2. We discussed the effect of transfers between countries, such as the indemnity imposed on Germany after World War I. Use the theory developed in this chapter to discuss the mechanisms through which a permanent transfer from Poland to the Czech Republic would affect the real zloty/koruna exchange rate in the long run.

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