Mundell-Fleming Model (a) Indicate whether the following statement is true, false, or uncertain and explain your answer using words, graphs and equations as appropriate. (i) In the Mundell-Fleming model with a floating exchange rate, a rise in the world interest rate will lead to both income and net exports rising. In a small open economy with a fixed exchange rate, an (ii) effective policy to increase equilibrium output is to increase the money supply. (iii) Imposing a tariff on imports will cause output to increase.

Mundell-Fleming Model (a) Indicate whether the following statement is true, false, or uncertain and explain your answer using words, graphs and equations as appropriate. (i) In the Mundell-Fleming model with a floating exchange rate, a rise in the world interest rate will lead to both income and net exports rising. In a small open economy with a fixed exchange rate, an (ii) effective policy to increase equilibrium output is to increase the money supply. (iii) Imposing a tariff on imports will cause output to increase.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1.
Mundell-Fleming Model
(a) Indicate whether the following statement is true, false, or
uncertain and explain your answer using words, graphs and
equations as appropriate.
(i)
In the Mundell-Fleming model with a floating exchange
rate, a rise in the world interest rate will lead to both
income and net exports rising.
In a small open economy with a fixed exchange rate, an
effective policy to increase equilibrium output is to
increase the money supply.
(ii)
(iii) Imposing a tariff on imports will cause output to
increase.

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