According to the Asset market Approach, an unexpected increase in the money supply will cause the currency to depreciate or appreciate in short term and long term ?
Depreciate in the S-T.
Depreciate in the short-run, appreciate in the long-run back to PPP driven level. The dominating affect is the depreciation.
so does that mean in the short term the currency will depreciate more than implied by PPP so in long term because it will go back to PPP level it will appreciate.
It means that it will depreciate in the short term and long term, but will overshoot in the short term, and slowly rise after time, but will not fully rise to the level it was before the supply shift.