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2. Suppose a large open economy with fixed exchange rate. A. What happens to income, interest rate in response to a fiscal expansion? B.

2. Suppose a large open economy with fixed exchange rate. A. What happens to income, interest rate in response to a fiscal expansion? B. What happens to income and interest rate if the central bank expands money supply by buying bonds from the public?

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A As we can see in following diagram when there is fiscal expansion the IS curve will shift ... blur-text-image

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