Problem
Analyze a transitory increase in the foreign interest rate, A. Under which type of exchange rate is there a smaller effect on output-fixed or floating? Suppose now that 11* rises permanently. What happens to the economy. and how does your answer depend on whether the change reflects a rise in the foreign real interest rate or in foreign inflation expectations (the Fisher effect)?
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.