following an increase in the demand for money, an open economy is experiencing a significant increase in real interest rates relative to the rest of the world.

a. Explain how this increase in interest rates will affect each of the following for the country.

i. investments

ii. the international value of its currency

iii. exports

b. Using a correctly labeled aggregate demand and aggregate supply diagram, show how the change in investment you identified in part (a) will affect each of the following in the short run.

i. output

ii. the price level

c. identify one fiscal policy action that could counter the effects identified in part (b). Explain how this policy will affect each of the following

i. output

ii. the price level

iii. nominal interest rates

iv. the price of previously issued bonds

d. Assume the banking system has ample reserves. Identify one monetary policy action that could counter the effects identified in part (b).