Problem Set #6 4/10B.Answer BOTHof the following questions based on the standard models of analysis developed in class. 1.Open Economy IS-LM Model with the Foreign Exchange Market (35 points). Argentina and Brazil are major trading partners that are initially in general equilibrium with flexible exchange rates. a.Based only on this information, use an open economy IS – LM model diagram for each country, as well as a diagram of the foreign exchange market for the Argentine peso, to clearly and accurately showeach economy’s initial equilibrium position and equilibrium in the foreign exchange market. These diagrams should be shown in BLACK. Foreign Exchange Market IS1Argentina Brazilr r1r0r r0r1Y1Y0YY1Y0YIS0LM0LM1LM0IS0S0D0QPesoPPeso P2 P0S1D1S2
has intentionally blurred sections.
Sign up to view the full version.