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Unformatted text preview: must also fall. If correct speculation makes r f go up by 10%, then r s must go up by more than 10% to keep CD = 0. Speculators must have the prospect of seeing the value of the dollar rise in order to keep them invested in the U.S. This can only happen if the value of the dollar is bid below its ultimate value. Foreign Exchange Policies 1. intervene in the foreign exchange market 2. impose direct restrictions on international transactions 3. adopt tighter aggregate demand policies 4. allow the exchange rate to adjust exchange rate regimes 1. gold standard 2. Bretton Woods 3. flexible exchange rates...
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