Draw a Mundell-Fleming model labelling all curves and axis. Make sure you include the full employment level of output and the world interest rate. Why does the IS curve slope down and why does the LM curve slope up? (use intuition or maths)

Draw a Mundell-Fleming model labelling all curves and axis. Make sure you include the full employment level of output and the world interest rate. Why does the IS curve slope down and why does the LM curve slope up? (use intuition or maths)

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 1CQQ

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Question

Hi can you please help with explanations and calculations?

1. Draw a Mundell-Fleming model labelling all curves and axis. Make sure you include the full employment level of output and the world interest rate. Why does the IS curve slope down and why does the LM curve slope up? (use intuition or maths)
2. For a monetary expansion under a floating rate (ignoring the effects of the output gap on prices for now), explain carefully why the LM curve shifts right, and then the IS curve shifts right
3. What is the output gap and why is it important for macroeconomic management? Once the output gap effects have taken place, describe the path back to equilibrium for a monetary expansion under a floating rate and outline the meaning of money neutrality.

Branch of economics that analyzes the behavior and performance of an economy as a whole. It focuses on the study of aggregates and evaluates changes related to unemployment, gross domestic product, inflation, monetary and fiscal policies of the government.

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