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Explain how the money markets of two countries are linked through the foreign exchange market.
Answer: The financial policy actions by the Fed affect the U.S. interest rate altering the dollar/euro exchange rate that clears the foreign exchange market. The European System of Central Banks (ESCB) is able to affect the exchange rate by changing the European money supply and interest rate.
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Q. Use a figure to study the following question: Consider that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the asset and output markets
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