7. a) In a large open economy as the US, how would expansionary fiscal and ease...

7. a) In a large open economy as the US, how would expansionary fiscal and ease money policies affect the interest and GDP ? Use the IS-LM curves in a large open economy to demonstrate it.

b) based on your answers, how would it affect net capital flows and the resultant exchange rates in the model?

c) The Reagan tax cut in the 1980’s did not affect the dollar exchange rate did not as the model predicts. Why ?

d) Currently, the Trump Administration is undertaking a stimulus package of $ 2.3 trillion, about 47% of annual federal budget ( the House proposed another $ 3 trillion stimulus) and the Fed is also undertaking unlimited quantitative ease. But, WSJ reported that “ The U.S. Dollar is inching higher against a basket of major currencies on Monday in a lackluster session.” On May 18. Why the dollar exchange rate is high under the expansionary policies?

Expert Solution

Rahul Sunny answered 2 years ago

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