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At time t=0, R$ =15%, R=15%, and E$/ =1. Assume that Reserve Bank of Australia permanently increases money supply in Australia by 20% at time
At time t=0, R$ =15%, R=15%, and E$/ =1. Assume that Reserve Bank of Australia permanently increases money supply in Australia by 20% at time t=1. In addition, assume the following: The policy change is not anticipated at t=0 Prices are fixed in the short run Prices completely adjust to the change in money supply in the long run In the short run, domestic net exports (NX) decrease due to an increase in E ( due to the J-curve effect). R =15% at t=1 Select the most appropriate option: A. E$/ =1.2 and R$ =15% in the long-run; E$/ >1.2 and R$<15% at t=1; the $ depreciation in t=1 is more relative to the case where NX immediately increase due to an increase in E. B. E$/ =1.2 and R$ =15% in the long-run; E$/ >1.2 and R$<15% at t=1; the $ depreciation in t=1 can be more or less relative to the case where NX immediately increase due to an increase in E. C. E$/ =1.2 and R$ =15% in the long-run; E$/ >1.2 and R$<15% at t=1; the $ depreciation in t=1 is less relative to the case where NX immediately increase due to an increase in E. D. E$/ =1 and R$ =15% in the long-run; E$/ >1 and R$<15% at t=1; the $ depreciation in t=1 is more relative to the case where NX immediately increase due to an increase in E. E. E$/ =1.2 and R$ =15% in the long-run; E$/ >1.2 and R$<15% at t=1; the $ depreciation in t=1 is the same relative to the case where NX immediately increase due to an increase in E
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