Show what happens to output and the real exchange rate

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Reference no: EM131221882

Suppose that firms in Boversia gain confidence in the economy, so domestic investment rises for any given interest rate. For now, assume that net capital outflows don't change. Using graphs, show what happens to output and the real exchange rate under three assumptions about Boversia's monetary policy:

a. The central bank holds the real interest rate constant.

b. The central bank adjusts the real interest rate to keep output constant.

c. The central bank adjusts the real interest rate to keep the real exchange rate constant.

Reference no: EM131221882

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