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With an unexpected increase in money supply, according to the theory of Uncovered Interest Parity (UIP),...

With an unexpected increase in money supply, according to the theory of Uncovered Interest Parity (UIP), the dollar ($) value must fall and Malaysia's real interest rate (r) must rise so that equilibrium is always stable and in long run Malaysia's price will be equal to the price in United States and Purchasing Power Parity holds. Explain this using Dornbusch overshooting exchange rate model.

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Rahul Sunny answered 2 years ago
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