5.9. Exchange-market intervention. Suppose that the central bank intervenes in the foreign exchange market by purchasing foreign currency for dollars, and that it sterilizes this intervention by selling bonds for dollars to keep the money stock unchanged. With this intervention, NX and CF must sum to a positive amount rather than to zero (see equation [5.21]).

(a) What are the effects of this intervention on output, the exchange rate, and the price level under a floating exchange rate, static exchange-rate expectations, and imperfect capital mobility?

(b) How, if at all, do the results in part

(a) change if capital is perfectly mo- bile?