# 20. We can express a linear approximation to the interest parity condition (accurate for small exchange rate

## Question:

20. We can express a linear approximation to the interest parity condition (accurate for small exchange rate changes) as: R = R* + (Ee - E)>Ee. Adding this to the model of problems 14 and 19, solve for Y as a function of G. What is the government spending multiplier for temporary changes in G (those that do not alter Ee)?

How does your answer depend on the parameters

**a,** b, and

**d,** and why?

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**Related Book For**

## International Finance Theory And Policy

**ISBN:** 9781292238739

11th Global Edition

**Authors:** Paul R. Krugman, Maurice Obstfeld, Marc Melitz