Assume you are in a small open economy with flexible exchange rates. The economy experiences a permanent

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Assume you are in a small open economy with flexible exchange rates. The economy experiences a permanent positive demand shock.

(a) Draw the $P C-M R$, the $I S-R X$ and the $A D-E R U$ diagrams to help you explain the path back to medium-run equilibrium.

(b) Draw a graph of the real exchange rate over time and give a brief explanation of its path.

(c) How does the medium-run equilibrium vary from that which would occur in a closed economy subjected to the same shock?

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Macroeconomics Institutions Instability And The Financial System

ISBN: 9780199655793

1st Edition

Authors: Wendy Carlin, David Soskice

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Question Posted: Jun 10, 2024 02:10 AM

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Assume you are in a small open economy with flexible exchange rates. The economy experiences a permanent

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Macroeconomics Institutions Instability And The Financial System

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