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Determine in detail about the money market
Prior to the change in monetary policy both countries are assumed to be in equilibrium at point A in both of these diagrams. Only at this point are the goods market and money market simultaneously in equilibrium. In country A the rate of interest (r) and national income (Y) are initially R0 and Y0 respectively. Similarly in country B they initially equal R0 and Y0. We now suppose that country A expands its domestic money supply. This is represented by the LM curve for that economy shifting to the right from LM0 to LM1.
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