3. In the class, we have learned: "The more open the economy, the smaller the effect of Fiscal policy on output." Suppose we want to see whether it is true or not in the given economy. Let's re-formulate the statement using the variables in this economy (Step 1) Define 'Openness' as (export + import )/GDP. Then, x Y. export + import + m, YE x, Y' Openness = - GDP Y + ME E /Y For a given level of foreign income (Y*), real exchange rate(c), openness increases as m, (increases/decreases) So, instead we can check whether an increase in m, decreases the effect of Fiscal policy on output or not. (step 2) Now let's check the effect of m, on the effect of Fiscal policy. First, derive the equilibrium output for this open economy. (with the multiplier and autonomous spending term). Assume 0