Essay
Two small open economies, Fixed and Flex, can be described by the Mundell-Fleming model. The countries are otherwise identical except that Fixed maintains a fixed exchange rate, while Flex 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
b. equilibrium output
c. net exports.
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a. The central bank in Fixed will keep t...View Answer
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