A You Are the Chief Economic Adviser in a Small

Essay

a. You are the chief economic adviser in a small open economy with a floating-exchange-rate system. Your boss, the president of the country, wishes to increase the level of output in the short run in order to win reclection. Do you recommend using expansionary or contractionary monetary or fiscal policy?

b. Use the Mundell-Fleming model to illustrate graphically your proposed policy. Be sure to Label:
i, the azes;
ii. the curves,
iii. the initial equilibrium levels
iv. the direction the curves shift
v. the new short-run equilibrium