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Using a figure describing both the U.S. money market and the foreign exchange market, analyze the short-run effects of the expected future devaluation in a
Using a figure describing both the U.S. money market and the foreign exchange market, analyze the short-run effects of the expected future devaluation in a country fixing its exchange rate at . Clearly illustrate in the graph (correctly labeling axes and curves) and explain briefly what causes the curves to shift. What happens to the levels of foreign reserves and money supply?
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