A fall in consumer confidence results in Nominal exchange rate decreases Real exchange rate decreases Trade Balance increases A tax reform increasing the incentive for businesses to build new factories will result in Nominal exchange rate increases Real exchange rate increases Trade balance decreases Consumers preferring foreign cars over domestic cars will result in Nominal exchange rate decreases Real exchange rate decreases Trade balance does not change The central bank doubling the money supply will result in Nominal exchange rate does not change Real exchange rate increases Trade balance does not change An increase in the demand for money will result in Nominal exchange rate increases Real exchange rate does not change Trade balance does not change US inflation and money growth increased from 1960 until 1975 then decreased until 2000 then has been slowly increasing Figure 1
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