The Following Citation Is from the Wall Street Journal's Article

Essay

The following citation is from the Wall Street Journal's article "Central Bankers Hone Tools to Pop Bubbles," July 9,2013 (http: / / goo.gl / cCkklC)
"With interest rates very low in much of the world,cheap money is everywhere,even flooding into smaller economies such as Israel's.The money is driving up Israel's currency,threatening its important export sector.That presents Israel's central bank with a dilemma: Raising interest rates would likely exacerbate the problem by boosting the currency further,but low rates can fuel a borrowing binge,particularly for home buying."
a.Using the exchange rate determination model NCO-NX,show how does the money "flooding into smaller economies such as Israel's" drive up Israel's currency.How does this threaten Israel's export sector?
b.Using the liquidity preference model and the NCO-NX model,show how "raising interest rates would likely exacerbate the problem."
c.Explain the dilemma that the Israeli central bank faces.Why is this issue important for the economy?