Question: This is a typical small open economy with floating. i.e. e = 2.25 + 0.25r. s Compare the exchange rates under scenarios under a, b

This is a typical small open economy with floating. i.e. e = 2.25 + 0.25r. s Compare the exchange rates under scenarios under a, b ( expansionary fiscal policy) and scenario e ( tight money policy).

Explain why the exchange rates are different under each scenario. Use IS* and LM* to support your answer.

Compare the net export under scenarios a, b and e.

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