do only question 8 Suppose that we are in a country Localia, again trading LCL as our currency. We are still tradingwith Nearovia and their Nearos.Suppose also that Localia begins at its long-term equilibrium level of Real GDP. Now supposethat Localia experiences an increased in its autonomous desired investment.7. If Localia was a closed economy, what would we expect to happen to its Real GDP andthe price level in the short-run? Explain using the AD-AS figure.8. Suppose instead that Localia is an open economy, that trades both goods and assets withNearovia, and the LCL-NER exchange rate is a flexible exchange rate. What happens tothe short-run Real GDP and price level now? Does this flexible exchange rate have astabilizing or de-stabilizing effect on Real GDP relative to your answer in Q7? Explainusing the AD-AS figure.9. Finally, Suppose instead that the LCL-NER exchange rate is a fixed exchange rate instead,maintained by the Localia Central Bank. Does this fixed exchange rate have a stabilizingor de-stabilizing effect on Real GDP relative to your answers in Q7 or Q8? Explain usingthe AD-AS figure.10. In the case of this fixed exchange rate, what action does the Central Bank of Localia needto take to maintain the fixed rate in this example?

Since you have asked us to solve only question 8, we will answer the given question for you. If you…

Answered: Suppose that we are in a country…

Suppose that we are in a country Localia, again trading LCL as our currency. We are still trading with Nearovia and their Nearos.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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