Problem
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.
3. Continuing with the preceding problem, discuss how the transfer would affect the long-run nominal exchange rate between the two currencies.
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.