You are the chief economic adviser in a small open economy with a floating-exchange-rate system. The...

You are the chief economic adviser in a small open economy with a floating-exchange-rate system. The country wishes to decrease the trade imbalance while increases the level of output in the short run. Do you recommend using expansionary or contractionary monetary or fiscal policy? And, Use the Mundell–Fleming model to illustrate your proposed policy graphically. What is the impact of policy on exchange rate?

Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium levels; iv. the direction the curves shift; and v. the new short-run equilibrium

Expert Solution

Rahul Sunny answered 8 months ago

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