3. Using the central bank balance sheet diagrams, evaluate how each of the following shocks affects a

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3. Using the central bank balance sheet diagrams, evaluate how each of the following shocks affects a country’s ability to defend a fixed exchange rate.

a. The central bank sells government bonds.

b. Currency traders expect a depreciation in the home currency in the future.

c. An economic contraction leads to a change in home money demand.

d. The foreign interest rate falls.

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International Macroeconomics

ISBN: 9781319061722

4th Edition

Authors: Robert C Feenstra ,Alan M Taylor

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