Use the Mundell-Fleming model to predict what would happen to aggregate income, the exchange rate, and...

Use the Mundell-Fleming model to predict what would happen to aggregate income, the exchange rate, and the trade balance under both floating and fixed exchange rates in response to each of the following shocks. Be sure to include an appropriate graph in your answer.
1. The government enforces a policy of import quotas/tariffs.
2. The monetary authority engages in open market operations and begins buying bonds.

Solutions

Expert Solution

A) When government enforces a policy of imports ,then imports will reduce and there will be expansionary fiscal policy.

B) When government buy the bonds , then there is a expansionary monetary policy.

Rahul Sunny answered 1 year ago

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