Consider the following open economy model: C = CO + cYD YD= Y I= I0. br NX = No - n¡Y + n2Yf + n3R M/P-Mo+mOY-mp. where AD = C + I + Go + NX Derive the multipliers for the closed and open economy and make relevant comparison between them. What is the impact of Mo and Go on the equilibrium value of R. That is, discuss the role of monetary policy and fiscal policy on the real exchange rate.
Consider the following open economy model:
C = CO + cYD
YD= Y
I= I0. br
NX = No - n¡Y + n2Yf + n3R
M/P-Mo+mOY-mp.
where AD = C + I + Go + NX
Derive the multipliers for the closed and open economy and make relevant comparison between
them.
What is the impact of Mo and Go on the equilibrium value of R. That is, discuss the role of
Suppose that country A is a small open economy. Discuss the following effects by the help of
relevant figures. Discuss by your own words explicitly and briefly.
(a) Contractionary Monetary Policy under fixed exchange rate regime and perfect capital
mobility.
(b)
Contractionary Fiscal Policy under flexible exchange rate regime and without capital
mobility.
(c)
Expansionary Monetary Policy under fixed exchange rate regime and imperfect capital
mobility if interest rates are more sensitive to the capital flows.
(d)
Expansionary Fiscal Policy
under flexible exchange rate regime and perfect capital mobility.
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