20. When the domestic price index (like the CPI) is a function of both the price...

 

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20. When the domestic price index (like the CPI) is a function of both the price of domestic goods and of the price of imports in domestic currency terms (i.e., P*/e), in this modified version of the Mundell-Fleming model under floating exchange rates, A) fiscal policy has no impact on the output level. B) an IS* shock has only an impact on the exchange rate but not on output. C) the imposition of a tariff or a quota has no impact on output but causes the exchange rate to rise. D) fiscal policy will be somewhat effective in increasing the output level because the exchange rate rises by less than in the original Mundell-Fleming model. 20. When the domestic price index (like the CPI) is a function of both the price of domestic goods and of the price of imports in domestic currency terms (i.e., P*/e), in this modified version of the Mundell-Fleming model under floating exchange rates, A) fiscal policy has no impact on the output level. B) an IS* shock has only an impact on the exchange rate but not on output. C) the imposition of a tariff or a quota has no impact on output but causes the exchange rate to rise. D) fiscal policy will be somewhat effective in increasing the output level because the exchange rate rises by less than in the original Mundell-Fleming model.

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The detailed answer for the above question is provided below In this modified version of the MundellFleming model with a domestic price index that com... View the full answer