1. Chapter 16 Exercise A Permanent Increase in the Money Supply 1.the short-run effect (1)A permanent increase in M s must ultimately lead to a proportional rise in E.The rise in M s causes E e to rise proportionally. (2)Because a rise in E e, the upward shift of AA 1 to AA 2 (permanent) is greater than caused by an equal, but transitory, increase. (point 3) (3)Point 2 is above XX CA(point2)>X The current account improves.

2. (4) E, Y, Y 2 > Y f, CA 2.the adjustment to the long run (Figure 16-15) (1) Y 2 > Y f working overtime W AC P (2)the output market P q CA D Y DD shifts left (DD 1 DD 2 ) (3)the money market P M s /P ED R

3. (4)the foreign exchange market R buying domestic currency E AA shifts left (AA 2 AA 3 ) (5)the current account P q CA. To maintain CA=X, XX shifts upward gradually. CA=CA(EP*/P,Y-T) From point 1 to point 2, that E and Y rise makes the different effects for CA.

4. That E rises makes the improvement of CA through the Marshall-Lerner condition. That Y rises makes import increase. Exchange rate need depreciates higher to maintain at X level. From point 2 to point 3, the short-run equilibrium is above XX, the current account improves during the adjusting process. (6) E, Y returns to Y f E¹ E² E³ overshooting

5. (7)money neutrality ( 貨幣中立性 ) E and P rise in proportion to the increase in the money supply. (Y returns to Y f )

6. Chapter 16 Figure 16-15 Long-Run Adjustment to a Permanent Increase in the Money Supply XX¹ XX²