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Suppose the domestic and foreign interest rate are currently 0%. Aggregate demand is temporarily too high relative to potential output and so domestic inflation has

Suppose the domestic and foreign interest rate are currently 0%. Aggregate demand is temporarily too high relative to potential output and so domestic inflation has begun to rise above the central bank's target rate. Illustrate this initial short-run equilibrium with an ISLMIP diagram, showing the current values of output, the interest rate and exchange rate.

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