(Solution) - Suppose that a central bank buys bonds on the open -(2025 Original AI-Free Solution)

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Suppose that a central bank buys bonds on the open market and uses money to pay for them, thereby increasing the supply of money and decreasing the supply of bonds. Use the portfolio-balance approach to explain what would happen to (i) domestic interest rate, (ii) demand for foreign bonds, (iii) foreign interest rate, and (iv)The spot exchange rate.