Repeat problem 5.5, but now assume that the exchange rate is fixed. How are your answers different?
In problem 5.5 for each of the following cases, use the IS–MP model and the NCF curve to explain the effect on the output gap, the real interest rate, and net capital flows, assuming that exchange rates are flexible.
a. Consumers decide to spend more and save less.
b. There is an increase in demand for exports, so net exports increase.
c. Monetary authorities contract the money supply.
d. Expected profits from newly built factories in the domestic economy increase.