1) Analyze and explain the IS* and LM * curves in the small open economy under...

1) Analyze and explain the IS* and LM * curves in the small open economy under the fixed and flexible ( floating ) exchange -rate system. Explain in detail the assumptions of the Mundell-Fleming Model, its limitations, and explain what occurs to the models variables as the economy moves from the short term ( when price is fixed) to the long term ( when price is flexible). Include diagrams of the appropriate economic models in your answer.

Expert Solution

Rahul Sunny answered 2 years ago

please compare and explain the IS-LM curve in a closed economy and a small open economy

Using the IS-LM-FE model for a small open economy, analyze the effects of a contractionary monetary...

Using the IS-LM-FE model for a small open economy, analyze the effects of a contractionary monetary policy on output and the real interest rate in the short run and the long run. In each case, discuss the differences between the classical and the Keynesian models.

IS-LM Model (Closed Economy) The following equations describe a small open economy. [Figures are in millions...

IS-LM Model (Closed Economy) The following equations describe a small open economy. [Figures are in millions of dollars; interest rate (i) is in percent]. Assume that the price level is fixed. Goods Market C = 250 + 0.8YD YD = Y + TR – T T = 100 + 0.25Y I = 300 – 50i G = 350; TR = 150 Money Market L = 0.25Y – 62.5i Ms/P = 250 Goods market equilibrium condition: Y = C +...

using an IS-LM-FE diagram as an aid, show the effect on a small open economy of...

using an IS-LM-FE diagram as an aid, show the effect on a small open economy of a permanent increase in the full-employment level of output. assume flexible exchange rates and assume that the domestic interest rate does not deviate from the foreign interest rate. explain what happens to output, the price level, net exports, the nominal exchange rate, and the real exchange rate. ( Please provide your answer in word format. not in your handwriting)

Derive and explain the IS and LM curves.

1. How does a small open economy differ from a large open economy? A. A small...

1. How does a small open economy differ from a large open economy? A. A small open economy has no effect on the world real interest rate. B. A small open economy is only open to trade with similar economies. C.A small open economy is able to influence the world interest rate through its saving and investment decisions. D.In a small open economy, equilibrium occurs when saving equals investment; however, in a large open economy equilibrium occurs when desired saving...

Compare the Closed-Economy IS-LM model, an Open-Economy IS-LM-BP model in which exchange rates are allowed to...

Compare the Closed-Economy IS-LM model, an Open-Economy IS-LM-BP model in which exchange rates are allowed to float freely, and an Open-Economy IS-LM-BP model in which exchange rates are held constant by the central bank. Specifically, use the three models to explain, and compare, the effects on GDP, interest, and the exchange rate of the national currency of: a. A sudden increase in government expenditures. b. A sharp increase in the discount rate and a massive sale of Treasury bonds by...

4. What do the IS and LM curves add to our understanding of the macro economy?...

4. What do the IS and LM curves add to our understanding of the macro economy? How/why is this important to policy formulation. What concerns would there be in formulating policy?

Classical small open economy model: According to the Classical small open economy model, what happens to...

Classical small open economy model: According to the Classical small open economy model, what happens to domestic national saving, investment, the trade balance, and the real exchange rate in response to each of the following events? Draw a loanable funds market diagram and a net exports diagram to illustrate your answer in each case. (For these diagrams, let’s assume that the country starts out running a current account surplus and capital account deficit, as in the examples in class.) a)...

A – Using the IS-LM curves explain in detail and show a) how and why the...

A – Using the IS-LM curves explain in detail and show a) how and why the drop in housing prices caused a major financial crisis in 2008, then how the 2008 financial crisis transformed into a major economic crisis and crashed the economy. b) What would have happened if FED employed a set of monetary policies opposite of those we saw during the recession. Discuss their impact on the economy, output, interest rates, and consumption and investment expenditures. c) What...

Question