Question: QUESTION-3: [9 marks each = 18] Using the II-XX framework, show using a diagram that fiscal policy by itself cannot bring the economy to both

QUESTION-3: [9 marks each = 18]

  1. Using the II-XX framework, show using a diagram that fiscal policy by itself cannot bring the economy to both internal and external balances.
  2. Explain the effects of expansionary domestic fiscal policy in a country with fixed exchange rates. Is fiscal policy enhanced or made weaker by the fixed exchange rates? Explain.

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