(1) In the IS-LM model, how does an increase in money supply affect the IS curve? (2) According to the Impossible Trinity, if an economy wants to allow for free capital flows as well as to have full control over its currency, which exchange rate system should be adopted? (3) In an IS-LM model, if the investors are suddenly less willing to invest, then what effects does this change make to the equilibrium? Explain your intuitions.
(1) In the IS-LM model, how does an increase in money supply affect the
IS curve?
(2) According to the Impossible Trinity, if an economy wants to allow for free capital
flows as well as to have full control over its currency, which exchange rate system
should be adopted?
(3) In an IS-LM model, if the investors are suddenly less willing to invest, then what
effects does this change make to the equilibrium? Explain your intuitions.
(4) According to your answers in (3), if the government wants to stabilize the interest
rate using
to stabilize the output level using monetary policies, what is your policy suggestion for
it?
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