Question:
Define and explain the interest parity concept using formal methods Explain IS and LM curve behavior and nominal interest rate in the domestic economy, and then to the exchange rate between the domestic economy and the rest of the world in the following situations. A weaker currency means it takes fewer foreign currency units to buy the domestic currency. (1) the domestic government increases spending 2) the domestic central bank decreases the money supply, 3) the foreign central bank increases.