Question
Assume Country X's economy is currently at full employment. (a) If country X's net exports decrease, what will happen to the price level in Country
Assume Country X's economy is currently at full employment.
(a) If country X's net exports decrease, what will happen to the price level in Country X? Explain.
(b) Draw a correctly labeled graph of the money market, and show the effect of the change in the price level identified in part (a) on the nominal interest rate.
(c) Based on your answer to part (b), what will happen to the price of previously issued bonds?
(d) Identify an open market operation that country X's central bank can use to offset the change in the nominal interest rate from part (b).
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