1. An economy is on a fixed exchange system.what happens when the government increases the level of government purchases in the economy?
2. Use the central bank's balance sheet and show what would happen to its assets and liabilities after the increase in government purchases in this fixed exchange rate economy.
3. Discuss the different effects of the domestic interest rates in the money market when prices are assumed flexible and when they are assumed to be sticky. Discuss why monetary expansion causes the current account balance to increase in the short run. Is the same the case for fiscal expansion? explain with a diagram