(a) In a small open economy with a floating exchange rate, how does an exogenous increase or decrease in investment effect real interest rate rate in the short run

(b) According to the Mundell-Fleming model, under flexible and fixed exchange rates how will expansionary fiscal policy effect income in the short run

(c) (true or false ) Assume two economies are identical in every way except that one has a lower saving rate. According to the Solow growth model, in the steady state the country with the lower saving rate will have a lower level of total output and a lower rate of growth of output per worker as/than the country with the higher saving rate.

d) In a closed economy, how will an increase T and an increase in the real demand of money effect aggregate demand curve? Use the Aggregate Demand diagram derived from the IS-LM model to support your answer.

(e) (true or false) In a small open economy with a fixed exchange rate the central bank sells foreign currency in the foreign exchange market to prevent a depreciation of the nominal exchange rate.

Expert Solution

Rahul Sunny answered 2 years ago

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