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Consider the monetary policy under floating exchange rates. a. Use the IS-LM-FX model to predict how the temporary decrease in the money supply affects the

Consider the monetary policy under floating exchange rates.

a. Use the IS-LM-FX model to predict how the temporary decrease in the money supply affects the interest rate, the exchange rate, and the output. Illustrate Graphically.

b. What will happen to the investment? Explain.)

c. What will happen to the trade balance? Explain.

d. What is the main difference between monetary policy and fiscal policy?

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