On March 9 2015, the European Union (EU) commenced quantity expansion of money, Euro (€). The European Central Bank (ECB) has increased the quantity of money by 60 billion euro every month in the open market in an attempt to support the economy of EU countries. The large increase in the quantity of money is expected to have significant impacts on a range of economic sectors in the EU and global financial markets. (a) Analyse how the quantity expansion of euro money is likely to affect money supply, interest rate, investment and consumption, and economic growth in the EU. Draw relevant graph(s) for your analysisDiscuss how the quantity expansion of euro money would change the value of euro, exchange rate (depreciation or appreciation) against other currencies, and exports and imports in the EU. How would this contribute to EU's current account balance and would this improve the competitiveness of the EU economy in the global market?The United States is likely to Raise Interest Rate soon The U.S. Federal Reserve chairman, Dr Janet Yellen, has signalled that the United States is likely to raise its interest rate as US economic indicators has improved. On the other side of the world, however, the interest rates in many other countries including the EU and Australia are on hold at their lowest level ever. (b) Explain, in the short run, how and why an increase in US interest rate is likely to change the flow of funds between the United States and AustraliaUsing a graph, explain how an increase in US interest rate is likely to affect loanable funds supply and interest rate in Australia. Also, analyse how the change in loanable funds supply and home loan interest rate are likely to influence housing demand, house prices, and household debt burden in Australia.Discuss how and why an increase in US interest rate is likely to affect the value of Australian dollar and exchange rate (depreciation or appreciation) against the US dollar. Also, discuss how the change in exchange rate is expected to influence Australia's exports, imports and the current account balance (improve or worsen)Exchange Rate and Balance of PaymentsIn October 2012, the exchange rate was 82 Japanese yen per US dollar. As a result of Abenomics in Japan since late 2012 and economic recovery in the US, the exchange rate rose to 114 Japanese yen per US dollar in March 2016.(a) Draw a graph and explain what would have happened to the quantity of US dollar supplied and the US exchange rate? What would have happened to the interest rate in the United States? Would people now plan to buy or sell US dollar in the foreign exchange market?What would have happened to the quantity of Japanese yen supplied? Would people now plan to buy or sell Japanese yen in the foreign exchange market?In July 2015, Australian dollar is trading at US$0.75 per Australian dollar and the interest rate in Australia is currently 2 per cent a year. It is forecast that the US will increase its interest rate some time later this year. (b) If the interest rate in the US increases to 3 per cent a year, how is it likely to affect the flow of funds between Australia and the United States and the exchange rate of US dollar against Australian dollar (depreciation or appreciation)? What is likely to happen to the current account balance of the United States?