1. Using the Mundell-Fleming open economy model, briefly explain the effects of the following policies on...

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1. Using the Mundell-Fleming open economy model, briefly explain the effects of the following policies on the economy. Draw the relevant diagram in each case. An expansionary fiscal policy under a flexible exchange rate when capital is perfectly immobile. (7 marks) An expansionary fiscal policy under a flexible exchange rate when capital is perfectly mobile. (6marks) b) Use the open economy IS-LM model to contrast the predicted implications for the exchange rate in a country with a floating exchange rate and international capital flows of the following (derive your answers graphically): Expansionary fiscal policy and Expansionary monetary policy ii) iii) i) ii) (6 marks) (6 marks) 1. Using the Mundell-Fleming open economy model, briefly explain the effects of the following policies on the economy. Draw the relevant diagram in each case. An expansionary fiscal policy under a flexible exchange rate when capital is perfectly immobile. (7 marks) An expansionary fiscal policy under a flexible exchange rate when capital is perfectly mobile. (6marks) b) Use the open economy IS-LM model to contrast the predicted implications for the exchange rate in a country with a floating exchange rate and international capital flows of the following (derive your answers graphically): Expansionary fiscal policy and Expansionary monetary policy ii) iii) i) ii) (6 marks) (6 marks)