2 A nation has flexible exchange rates. To mitigate the effects of a recession, the central bank engages in in expansionary monetary policy. Insert the new supply and/or demand curves and insert arrows to the change in the variables on the Y and X axes. Cast of Real Credit S AS AD D RC RGOP Highlight the correct answer. In the Real Credit Market Central bank purchases financial securities in the open market. The money decreases increases supply: the real interest rate: decreases increases the amount of real credit borrowed per time; decreases increases In the Real Goods and Services Market C and I increase, therefore AD shifts; left right RGDP decreases increases GDP Price Index: decreases increases In the Foreign Exchange Market RGDP causes the domestic currency to: depreciate appreciate GDP Price Index causes the domestic currency to: depreciate appreciate The real interest rate causes the domestic currency to: depreciate appreciate Effect on Net Exports RGDP causes imports to: decrease increase GDP Price Index causes exports to: 3568/090 increase The combined effect of RGDP and GDP Price Index causes NE to: decrease increase The domestic currency depreciates which causes NE to: decrease increase With high capital mobility, the exchange rate dominates, so NE decrease increase NE will cause a secondary effect which causes RGDP to further. decrease increase