EC111Class18Questions - diagrams examine the effects of(a A...

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EC111 MACROECONOMICS Spring Term 2012 EC111 Class Exercise 18 1. What is meant by perfect international capital mobility? What does this imply about the domestic interest rate? 2. Suppose that we have an IS/LM economy with fixed prices and unemployment. The exchange rate is freely floating and there is perfect international capital mobility. Using
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Unformatted text preview: diagrams, examine the effects of: (a) A fall in domestic investment (b) A fall in the money supply. 3. What explains why exchange rates sometimes ‘overshoot’ in response to a policy change when capital is internationally mobile?...
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