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Unformatted text preview: it started from a position of balanced trade? (a) Expansionary fiscal policy. (b) In the Mundell-Flemming model, IS shifts to the right, currency appreciates, NX falls, IS shifts back to its original position. In the foreign exchange market, demand for domestic currency increases. As a result, domestic currency appreciates. (c) Net export will fall as a result of fiscal expansion. 3. You are the chief economic adviser of a small open economy with flexible exchange rate system. Your big boss, the prime minister of the country, wants to increase the level of output in the short run in order to win re-election. a. Do you recommend using expansionary or contractionary, monetary or fiscal policy? b. Use the Mundell-Fleming model to illustrate graphically your proposed policy. Expansionary monetary policy should be used....
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This note was uploaded on 04/15/2010 for the course ECON 291 taught by Professor J liu during the Summer '07 term at Simon Fraser.
- Summer '07
- J Liu