In the monetary small open-economy model with a flexible exchange rate, an increase in the world real interest rate

Question

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An increase in the world real interest rate makes domestic bonds more attractive relative to foreign bonds, leading to an appreciation of the domestic currency. This makes domestic goods and services more expensive relative to foreign goods and services, reducing net exports and shifting aggregate demand to the right. The increase in aggregate demand leads to an increase in output and the real interest rate.

In the Monetary Small Open-Economy Model with a Flexible Exchange