From question 2, suppose now that the domestic government decides to increase the government spending. a. What

Question:

From question 2, suppose now that the domestic government decides to increase the government spending.
a. What are the initial effects of this fiscal policy on the goods market, the money market, the foreign exchange market, and the balance of payments of the domestic economy? Which curve(s) will shift?
b. What is the adjustment mechanism under a fixed regime? Illustrate and explain which curve(s) will shift during the adjustment, and then compare the new equilibrium with the initial equilibrium.
c. What is the adjustment mechanism under a flexible regime? Illustrate and explain which curve(s) will shift during the adjustment, and then compare the new equilibrium with the initial equilibrium.
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...