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Denmark maintains a credible fixed exchange rate system and allows capital mobility. Explain the response of the Danish Central Bank when there is an increase
Denmark maintains a credible fixed exchange rate system and allows capital mobility. Explain the response of the Danish Central Bank when there is an increase in the real GDP of Denmark in the short run. You can assume that nothing happens in the Eurozone (foreign counterpart). Use the FX and money market diagrams to answer the question. On all graphs, label the initial equilibrium point A. Make sure that you label all the variables in the graph. Failure to do so may result in a penalty
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