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Assume a country faces a large government budget deficit and large current account deficit. Investors become concerned that the government will default on their foreign

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Assume a country faces a large government budget deficit and large current account deficit. Investors become concerned that the government will default on their foreign sovereign debt. As a result, they begin a large sell-off of their government bonds and take their funds out of the country.

Using the graph template, illustrate this chain of events.

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AD-AS P AS Po AD Real GDP Money Market Ms io MD Mo M Foreign Currency Market R Ro QFC O

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