Explain the implication for a country’s exchange rate in the monetary approach and in the portfolio balance approach of (a) an autonomous decline in the demand for money at each interest rate by the country’s citizens, and (b) a change in expectations by the country’s citizens such that less inflation is expected in the future.

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The Answer is The monetary approach to exchange rates focuses on the relationship between a country's money supply and its exchange rate. In this approach, an autonomous decline in the demand for money at each interest rate by the country's citizens would lead to an increase in the money supply. This increase in the money supply would result in a depreciation of the country's currency as the increased supply of the currency would lead to a decrease in its value relative to other currencies.

On the other hand, the portfolio balance approach to exchange rates considers the demand for a country's assets by foreign investors. In this approach, a change in expectations by the country's citizens such that less inflation is expected in the future would lead to a decrease in the expected return on domestic assets. This would result in a decrease in the demand for the country's assets by foreign investors, leading to a depreciation of the country's currency as the decreased demand for its assets would lead to a decrease in its value relative to other currencies.

In both approaches, an autonomous decline in the demand for money at each interest rate and a change in expectations regarding future inflation would lead to a depreciation of the country's exchange rate. This would make the country's exports cheaper for foreign buyers, potentially boosting its export sector, but also making imports more expensive for domestic consumers, potentially leading to higher inflation.

Explain the Implication for a Country’s Exchange Rate in the Monetary