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Assume a small open economy is operating under a regime of fixed exchange rates .Under these conditions, this country's fiscal authority decides to undertake expansionary
Assume asmall open economyis operating under a regime offixed exchange rates.Under these conditions, this country's fiscal authority decides to undertake expansionary fiscal actions.
a) Use the Mundell-Fleming model to illustrate the path of adjustment from the original equilibrium to the new equilibrium.
b) Under fixed exchange rates, will the fiscal authority be able to increase output without the help of a complementary policy change by the central bank?If your answer is "no," explain why this is the case.
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