3 `A nation has fixed exchange rates so the central bank will intervene in the foreign exchange market to maintain the pegged exchange rate. To mitigate the effects of a recession, the national government engages in expansionary fiscal policy. Insert the new supply andfor demand curves and insert arrows to the change in the variables on the Y and X axes. Cost of Real Credit P S AS AD D RC RGDP Highlight the correct answer. In the Real Credit Market The government borrows funds to increase spending. The demand for decreases increases funds: The real interest rate (0): increases The amount of funds borrowed per time: decreases increases In the Real Goods and Services Market G increases, therefore AD shifts (C & I will decrease. but G dominates) lef right RGDP: decreases increases The GDP Price Index (P): decreases increases In the Foreign Exchange Market RGDP causes the domestic currency to: depreciate appreciate GOP Price Index causes the domestic currency to: depreciate appreciate The real interest rate causes the domestic currency to: depreciate appreciate If capital mobility is high. the domestic currency will depreciate appreciate The central bank (buys or sells) the domestic currency: buys selle If capital mobility is low. the domestic currency will: depreciate appreciate The central bank (buys or sells) the domestic currency: buys sellE Effect on Net Exports (with high capital mobility) The central bank's intervention will cause the money supply to: decrease increase The central bank's intervention will cause RGDP to further. decrease increase