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According to the Trilemma if a country chooses a fixed exchange rate with no capital controls and the foreign country increases its money supply -the

According to the Trilemma if a country chooses a fixed exchange rate with no capital controls and the foreign country increases its money supply

-the domestic country must decrease it money supply to balance the exchange rate.

-none of these are correct

-foreign interest rates will fall, forcing the domestic country to lower its interest rates

-foreign interest rates will fall causing GDP to increase in the foreign economy. THe domestic country will have to use either monetary or fiscal policy to increase its GDP.

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