Assume that the central bank of Country X wants the economy to be in full-employment equilibrium. What open-market operation should the central bank initiate?
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Assume that the central bank of Country X wants the economy to be in full-employment equilibrium. What open-market operation should the central bank initiate?
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Given your answer in part (c), what will be the effect of the central bank’s open-market operation on each of the following in the short run?
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The nominal interest rate
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Employment. Explain.
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Assume that the real interest rate increases in Country X. Will the international value of Country X’s currency increase, decrease, or remain unchanged on the foreign exchange market? Explain.
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Assume that Country X’s financial account (formerly called capital account) balance is initially zero. Given your answer to part (e), will its financial account balance now be in surplus, be in deficit, or remain at zero?
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