Fully explain the effects on equilibrium output, interest rates, and the exchange rate from an increase...

Fully explain the effects on equilibrium output, interest rates, and the exchange rate from an increase in net exports under fixed and flexible exchange rates with mobile and immobile capital. (Include graphs)

Expert Solution

With an increase in domestic price level under fixed exchange rate with mobile capital situation will be as mention in graphs. As with fixed exchange rate, more capital inflow will take place, it will increase the investment as the existing interest rate economy with constant exchange rate will be taken more growth and increase in investment will increase in domestic output interest rate will be same and exchange rate will it is situation under fiscal policy measures so it is very effective.

Is curve shift from IS1 to IS2as interest rate rise due to increase in price level. It will increase the domestic output and foreign capital inflow at the high er interest rate at higher rate of interest capitulation flow rise and will lead to use in export proportion due to increase exchange rate but increase in investment will by the interest rate to its small interest rATE SO AT THE CONSTANT RATE OF INTEREST output will increase so it is effective extubation under is cal policy assumed here.

Rahul Sunny answered 2 years ago

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