Using an IS-LM-FE diagram as an aid, describe the effect on a small open economy of a permanent increase in the full-employment level of output. Assume flexible exchange rates and assume that the...

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Extracted text: Using an IS-LM-FE diagram as an aid, describe the effect on a small open economy of a permanent increase in the full-employment level of output. Assume flexible exchange rates and assume that the domestic interest rate does not deviate from the foreign interest rate. In the short run, when the price level is foxed, domestic output net exports v the nominal exchange rate and the real exchange rate