Hosting the 2016 Olympic games gave a huge boost to the Brazilian economy. With Brazil as the home country and the U.S. as the foreign country, use a single forex/money market graph to answer the following questions. Note that the Brazilian currency is the real (BR), and non-monetary events such as the Olympics can have no effect on inflation or investor expectations about inflation.
a. Label your initial equilibria in the money market (before the Olympics started) with an A and in the forex market with an A'.
b. What does your graphical model predict should be the effect of the Olympics on the Brazilian real/U.S. dollar exchange rate, EBR/$? Label the points representing the new money market equilibrium with a B and the new forex market equilibrium with B', and describe in words what has happened.