A country initially has achieved both external balance and internal balance. The country prohibits international financial capital
Question:
a. What is the slope of the country's FE curve?
b. What shifts occur in the IS, LM, or FE curves because of the increase in foreign demand for the country's exports?
c. What intervention is necessary to defend the fixed exchange rate?
d. As a result of the intervention, how does the country adjust back to external balance? Illustrate this using an IS-LM-FE graph. What is the effect of all of this on the country's internal balance?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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