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a) What is the impact of a temporary increase in the foreign interest rate under flexible exchange rates? How does this differ from the impact under fixed exchange rates.b) Show the impact of a permanent rise in foreign inflation rate under flexible exchange rates in the short run and the long run? Please describe with the aid of a figure.c) Discuss briefly what kind of exchange rate system you would recommend for a small country ina integrated global economy ( with capital mobility): fixed or flexible. describe the reasons for your policy recommendations clearly.

Microeconomics, Economics

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