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Unformatted text preview: b. How is answer to part (a) affected by allowing the domestic prices to adjust? c. Assuming fixed exchange rates and fixed price level, what are the effects of the import restriction on output, the exchange rate, and net export in country A? d. How is answer to part (c) affected by allowing the domestic prices to adjust? 3. Using Mundell-Fleming model to show the effect of a permanent increase in the full-employment output on a small open economy with flexible exchange rate. Explain what happens to output, the price level, net exports, and the exchange rate. 4. Why a country is limited in changing its money supply under a fixed exchange rate system?...
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- Summer '07
- J Liu