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Suppose that the relative supply of domestic products increases while the relative demand does not change. (1) What will happen to the real exchange rate?

Suppose that the relative supply of domestic products increases while the relative demand does not change.

(1) What will happen to the real exchange rate? Explain using a figure.

(2) What will happen to the demand of real money balances in the domestic economy?

(3) What will happen to the average domestic price level? (Assume that there is no change in money supply.)

(4) What will happen to the nominal exchange rate?

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