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8. A new government is elected and announces that once it is inaugurated, it vi increase the money supply. Use the DDAA model to study the economy's respocie, to this announcement. (5 points) Country A does not manage its exchange rate. Country B maintains a fixed exchange rate with Country A. a) Show the effect of an increase in Country A's money supply on its output and on the exchange rate using a graphical analysis. If output changes, explain in words what causes the change in aggregate demand that brings this about; if not, explain why not. b) Show the effect of the change in part (a) on Country B. (Hint: what reaction must Country A's policy cause in Country B?) c) Once the changes in parts (a) and (b) both happen, what is the net effect on Country A? Explain your answer. (To start, you might assume that Country A and Country B are the only countries in the world. Then, if you can, expand your analysis.) 8. A new government is elected and announces that once it is inaugurated, it vi increase the money supply. Use the DDAA model to study the economy's respocie, to this announcement. (5 points) Country A does not manage its exchange rate. Country B maintains a fixed exchange rate with Country A. a) Show the effect of an increase in Country A's money supply on its output and on the exchange rate using a graphical analysis. If output changes, explain in words what causes the change in aggregate demand that brings this about; if not, explain why not. b) Show the effect of the change in part (a) on Country B. (Hint: what reaction must Country A's policy cause in Country B?) c) Once the changes in parts (a) and (b) both happen, what is the net effect on Country A? Explain your answer. (To start, you might assume that Country A and Country B are the only countries in the world. Then, if you can, expand your analysis.)

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