Problem Set _6 - B. Answer BOTH of the following questions...

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Problem Set #6 4/10 B. Answer BOTH of 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 show each economy’s initial equilibrium position and equilibrium in the foreign exchange market. These diagrams should be shown in BLACK. Foreign Exchange Market
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Problem Set #6 5/10 b. Provide a brief economic explanation of what you have drawn in your diagrams above.
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Problem Set #6 6/10 c. Now suppose that the Argentine central bank conducts a contractionary monetary policy. On your diagrams above, clearly and accurately show what happens to economic output and the real interest rate in both
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This note was uploaded on 02/08/2011 for the course UGBA 101b taught by Professor Wilcox during the Summer '08 term at University of California, Berkeley.

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Problem Set _6 - B. Answer BOTH of the following questions...

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