Two small open economies, A and B, can be described by the Mundell-Fleming model. The countries are otherwise identical except that A maintains a fixed exchange rate, while B maintains a flexible exchange-rate regime. The governments of both countries increase spending by the same amount. Compare what happens in the two countries to: a. The exchange rate will remain unchanged in A and rise b. Equilibrium output will Click for List c. Net exports will rise in A and in A and rise Click for List in B. in B. in B.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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Two small open economies, A and B, can be described by the Mundell-Fleming model. The countries are otherwise identical except that A maintains a fixed exchange rate,
while B maintains a flexible exchange-rate regime. The governments of both countries increase spending by the same amount. Compare what happens in the two countries
to:
a. The exchange rate will
b. Equilibrium output will
c. Net exports will rise
remain unchanged in A and rise
Click for List
in A and
in A and
rise
Click for List
in B.
in B.
in B.
Transcribed Image Text:Two small open economies, A and B, can be described by the Mundell-Fleming model. The countries are otherwise identical except that A maintains a fixed exchange rate, while B maintains a flexible exchange-rate regime. The governments of both countries increase spending by the same amount. Compare what happens in the two countries to: a. The exchange rate will b. Equilibrium output will c. Net exports will rise remain unchanged in A and rise Click for List in A and in A and rise Click for List in B. in B. in B.
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