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Problem 2. Consider the small open-economy Mundell-Fleming model under floating ex- change rate. How will equilibrium income, nominal exchange rate, consumption, net exports, and money supply change when: • Import quotas (quantitative restrictions on imports) are removed? • There's an increase in taxes? . There's a decrease in money supply? • The government implements an investment subsidy? • For some reason the country's clothing exports have become more popular than before? For each case, distinguish between a floating exchange rate regime and a fixed exchange rate regime. A. For each case, write "increase", "decrease", or "no change" for each variable. (Note: use our notation for the nominal and real exchange rates.) 2 B. For each case, draw a graph that shows the change in equilibrium income and nominal exchange rate. C. For each case, explain succinctly the mechanisms behind the variables' movements.

Problem 2. Consider the small open-economy Mundell-Fleming model under floating ex- change rate. How will equilibrium income, nominal exchange rate, consumption, net exports, and money supply change when: • Import quotas (quantitative restrictions on imports) are removed? • There's an increase in taxes? . There's a decrease in money supply? • The government implements an investment subsidy? • For some reason the country's clothing exports have become more popular than before? For each case, distinguish between a floating exchange rate regime and a fixed exchange rate regime. A. For each case, write "increase", "decrease", or "no change" for each variable. (Note: use our notation for the nominal and real exchange rates.) 2 B. For each case, draw a graph that shows the change in equilibrium income and nominal exchange rate. C. For each case, explain succinctly the mechanisms behind the variables' movements.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Problem 2. Consider the small open-economy Mundell-Fleming model under floating ex- change rate. How will equilibrium income, nominal exchange rate, consumption, net exports, and money supply change when: • Import quotas (quantitative restrictions on imports) are removed? • There's an increase in taxes? . There's a decrease in money supply? • The government implements an investment subsidy? For some reason the country's clothing exports have become more popular than before? For each case, distinguish between a floating exchange rate regime and a fixed exchange rate regime. A. For each case, write "increase", "decrease", or "no change" for each variable. (Note: use our notation for the nominal and real exchange rates.) 2 B. For each case, draw a graph that shows the change in equilibrium income and nominal exchange rate. C. For each case, explain succinctly the mechanisms behind the variables' movements.
Transcribed Image Text:Problem 2. Consider the small open-economy Mundell-Fleming model under floating ex- change rate. How will equilibrium income, nominal exchange rate, consumption, net exports, and money supply change when: • Import quotas (quantitative restrictions on imports) are removed? • There's an increase in taxes? . There's a decrease in money supply? • The government implements an investment subsidy? For some reason the country's clothing exports have become more popular than before? For each case, distinguish between a floating exchange rate regime and a fixed exchange rate regime. A. For each case, write "increase", "decrease", or "no change" for each variable. (Note: use our notation for the nominal and real exchange rates.) 2 B. For each case, draw a graph that shows the change in equilibrium income and nominal exchange rate. C. For each case, explain succinctly the mechanisms behind the variables' movements.
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