When analyzing the complete model, which can predict short-run and long-run changes in the exchange rate, one must:
a. start with short-run changes and move toward long-run changes, and thereby determine expectations.
b. use only the long-run model because the short-run model is largely irrelevant.
c. start with the long-run equilibrium positions where expectations of future exchange rates can be determined, and use those expectations to feed into the short-run model.
d. use the short-run model only, because the long run is only a theoretical concept.
Answer: c. start with the long-run equilibrium positions where expectations of future exchange rates can be determined, and use those expectations to feed into the short-run model.
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