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2. Suppose the central bank of a country is worried about the economy overheating so it enacts a contractionary monetary policy (reducing the money supply
2. Suppose the central bank of a country is worried about the economy overheating so it enacts a contractionary monetary policy (reducing the money supply and raising interest rates): 2B. What would the central bank have to do to maintain the fixed exchange rate? Illustrate this on the foreign exchange graph in 2A. (You do not need a new graph). 2C. Define sterilization and explain what the central bank would have to do to sterilize the intervention. Show on your graphs the GDP, interest rate, and exchange rate with sterilized intervention (label as point 1 on the graphs from 2A)
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