Money, Interest Rates, And Exchange Rates - The Equilibrium Interest Rate: The Interaction of Money Supply and Demand - The money supply and the exchange rate in the short run
3 important questions on Money, Interest Rates, And Exchange Rates - The Equilibrium Interest Rate: The Interaction of Money Supply and Demand - The money supply and the exchange rate in the short run
The influence of a reduction in money supply for a country
It causes its currency to appreciate in the foreign exchange market.
How are exchange market en money market influence each other?
The money market determines the dollar interest rate, which affects the exchange rate that maintains interest parity.
What happens when money supply increases?
Ms/P line shifts downward, what leads to a decrease in the interest rate. This will lead to a fall in the dollar return and therefore a depreciation of the currency.
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