What are the predictions for the long run equilibrium of the Monetary

What are the predictions for the long run equilibrium of the Monetary Approach?

What will be an ideal response?

ANSWER

Money supplies: Given the equations,
= PUS/PE
PUS = MUSS/L(R$, YUS)
PE = MES/L( , YE)
one can show that an increase in the U.S. money supply MUSS causes a proportional increase in the U.S. price level PUS, which in turn causes a proportional increase in . Thus, an increase in U.S. money supply causes a proportional long-run depreciation of the dollar against the euro and vice versa.
Interest rates: A rise in the interest rate R$ lowers U.S. money demand L(R$, YUS) thereby causing a rise in the U.S. price level and a proportional depreciation of the dollar against the euro.
Output levels: A rise in U.S. output YUS raises real U.S. money demand leading to a fall in the long-run U.S. price level and an appreciation of the dollar against the euro.