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Unformatted text preview: -this trade deficit offsets high inflationary rates and creates more goods in the home economywhich will in turn stabilize inflation and price levels. -monetary policy works best to get rid of any residual inflation. -it decreases AD by raising interest rates.-this will attract capital flow.-increased foreign exchange availabilities.-in order to maintain policy, the central bank will have to sterilize, which controls money supply and limits monetary policy....
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- Spring '07