Assume that the exchange rate is allowed to fluctuate freely. Using IS-LM-IP model, graphically illustrate and...
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Assume that the exchange rate is allowed to fluctuate freely. Using IS-LM-IP model, graphically illustrate and explain what effect a monetary contraction in foreign country will have on the domestic economy. In your graphs, clearly label all curves and equilibria. a) What is the most necessary condition in fixed exchange rate regime? Why? b) Explain the effects of fiscal and monetary policies on the economy in a fixed exchange rate regime. c) If you are a policymaker, which one would you suggest? Why? Compare multiplier in open and close economies. In which type of economies, the effect of a fiscal expansion on output would be greater, open economies or closed economies? Explain Suppose there is a trade deficit and we want to achieve trade balance. Which policy do you prefer: fiscal expansion or fiscal contraction? Further suppose that trade balance is achieved. Which policy do you prefer for your trade partner country to use: fiscal expansion or fiscal contraction? Assume that the exchange rate is allowed to fluctuate freely. Using IS-LM-IP model, graphically illustrate and explain what effect a monetary contraction in foreign country will have on the domestic economy. In your graphs, clearly label all curves and equilibria. a) What is the most necessary condition in fixed exchange rate regime? Why? b) Explain the effects of fiscal and monetary policies on the economy in a fixed exchange rate regime. c) If you are a policymaker, which one would you suggest? Why? Compare multiplier in open and close economies. In which type of economies, the effect of a fiscal expansion on output would be greater, open economies or closed economies? Explain Suppose there is a trade deficit and we want to achieve trade balance. Which policy do you prefer: fiscal expansion or fiscal contraction? Further suppose that trade balance is achieved. Which policy do you prefer for your trade partner country to use: fiscal expansion or fiscal contraction?
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Answer rating: 100% (QA)
a The most necessary condition in a fixed exchange rate regime is the commitment of the central bank to maintain the exchange rate at a fixed level This requires the central bank to intervene in the f... View the full answer
Related Book For
Modern Advanced Accounting In Canada
ISBN: 9781259066481
7th Edition
Authors: Hilton Murray, Herauf Darrell
Posted Date:
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