Effect of temporary decrease in the european money supply

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What is the short-run effect of a temporary decrease in the European money supply on the US money market and the foreign exchange market, holding everything else constant? Illustrate graphically using E$/€ as the exchange rate and explain what happens to the R$, R€, US money supply, US money demand, and the exchange rate. Explain in words also what would happen to the price level, the money supply and the interest rate in the EU in the long-run as well as the exchange rate, E$/€ if the decrease in the European money supply was permanent. Compare your two findings.

Reference no: EM131426028

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