Suppose in the model that government expenditures increase temporarily. Determine the effects on aggregate output, absorption, the current account surplus, the nominal exchange rate, and the price level. What difference does it make if the exchange rate is flexible or fixed?
Answer to relevant QuestionsGive an example of a model that is used in some area other than economics, other than the roadmap example explained in this chapter. What is unrealistic about this model? How well does the model perform its intended function?Suppose that better transaction technologies are developed that reduce the domestic demand for money. Use the monetary small open-economy model to answer the following:(a) Suppose that the exchange rate is flexible. What are ...Suppose in the New Keynesian open-economy model, that there is an increase in future total factor productivity.(a) Under a flexible exchange rate, what are the equilibrium effects? Should economic policy respond to the ...Suppose that consumers are concerned about theft, and so they are willing to use banks for some of their transactions even if the nominal interest rate is zero. Further, suppose that, the more currency consumers hold, the ...Suppose that the economy is in a long-run equilibrium where the inflation rate is greater than the optimal rate i*, and then the central bank acts to reduce the inflation rate to i*.(a) Suppose that the central bank decides ...
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