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c. Suppose the USA Federal Reserve Bank conducts an expansionary monetary policy and lowers its interest rate to 2%. How will the central bank of

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c. Suppose the USA Federal Reserve Bank conducts an expansionary monetary policy and lowers its interest rate to 2%. How will the central bank of China react if it wants to maintain the exchange rate peg? What will be the eect of this on the interest rate in China? (2 points) d. Following part (c), with the help of a diagram explain the short-run effects of the foreign expansionary monetary policy on the economy of China. What happens to output and net exports? (2 points} e. Suppose instead that China decides to abandon the xed exchange rate regime and to adopt a exible exchange rate regime. With the help of a diagram explain how your answers in part (b) would change? What would happen to output, net exports, and nominal exchange rate? {2 points)

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