Open Economy Macroeconomics with Flexible Exchange Rates From Last Time • Is our paper supposed to be co-written: 1 group, 1 paper or 1 group, 3 papers? 1 group, 1 paper • Expansionary fiscal policy is more effective than expansionary monetary policy under fixed exchange rates because, in the short run, expansionary fiscal policy can lead to a balance of payments surplus. The BOP surplus causes the money supply to increase which reinforces the expansionary nature of your economic policy. • Why are exports not considered in the calculation for the multiplier in a small open economy? Such an economy is too small to have an impact on other national economies. So, the multiplier is equal to 1 divided by the sum of the nation's marginal propensity to save and its marginal propensity to import. • Do countries base their exchange rate policy solely on the cause of economic shocks? No, the decision may be based on any combination of economic and political considerations. Monetary Policy with Flexible Rates
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