Assume the economy of Bhutan is operating at full-employment.

Assume that the economy of Vietnam, a trading partner of Bhutan, enters into a recession. What is the effect of Vietnam's recession on the following in Bhutan in the short-run.

Aggregate Demand.

Real output and Price level. Explain.

The central bank in Bhutan wants to offset the effect of Vietnam's economic growth on Bhutan's economy. Other than open-market operations, what is another policy option the central bank of Bhutan could take on?

What is the effect of the policy option that you identified in part 2 on the nominal interest rate in the short-run?

Assume the real interest rate in Vietnam becomes greater than the real interest rate in Bhutan. Based on the change, answer the following.

Will the financial capital flow from Bhutan to Vietnam or Vietnam to Bhutan?

Will the value of Bhutan's currency on the FOREX market relative to Vietnam's currency appreciate, depreciate, or stay the same? Explain.