Question
assume that initially the IS curve is given by IS: Y=20-30i+G+E and the LM curve is given by LM: M=Y( 1-i ) where we have
assume that initially the IS curve is given by
IS:Y=20-30i+G+E
and the LM curve is given by
LM:M=Y( 1-i )
where we have setP=1,and the UIP condition is
i= i* +E
e
E
E
EeEE.
The foreign interest rate isi* =0.1. The initial level of government spending isG=4. The country is initially under a fixed exchange rate withE= Ee=1.
In the initial equilibrium, output is _____ and money supply is _____
Select one:
Y=22 , M=19.8
Y=24, M=21.6
Y=18 , M=16.2
Y=20 , M=18
Y=16 , M=14.4
Due to fiscal austerity, G falls from 4 to 2. Assuming that the Central Bank devalues the currency fromE= Ee=1 toE= Ee=3 (the fixed exchange rate regime remains in place after the currency is devalued),the new level of output is _____ and new money supply is _____
Select one:
Y=22 , M = 20
Y=22, M=19.8
Y=16 , M=14.4
Y=21, M=18.9
Y=18 , M=16.2
Due to fiscal austerity, G falls from 4 to 2. Assuming that the Central Bank keeps the fixed exchange rate at E=Ee=1, then the new level of output is ____ and money supply is _____.
Select one:
Y=22 , M=19.8
Y=16 , M=14.4
Y=18 , M=16.2
Y=21 , M=18.9
Y=20 , M=18
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