How a permanent increase in indias money supply affects

Question

Problem

Use the money market and foreign exchange (FX) diagrams to answer the following questions. This question considers the relationship between the Indian rupee (Rs) and the U.S. dollar ($). The exchange rate is in rupees per dollar, E_Rs/$. On all graphs, label the initial equilibrium point A.

a. Illustrate how a permanent increase in India's money supply affects the money and F_X 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 M_IN, price level P_IN, real money supply M_IN/P_IN, interest rate i_Rs, and the exchange rate E_Rs/$.

c. Using your previous analysis, state how each of the following variables changes in the short run (increase/decrease/no change) India's interest rate i_Rs, E_Rs/$, expected exchange rate Ee R_s/$, and price level PIN.

d. Using your previous analysis, state how each of the following variables changes in the long run (increase/decrease/no change relative to their initial values at point A): India's interest rate i_Rs, E_Rs/$, Ee R_s/$, and India's price level P_IN.

e. Explain how overshooting applies to this situation?

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.