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Clear Graphs please and thank you. Question 2: [25 marks| 1. Show the short run effects of a foreign fiscal expansion on an open economy

Clear Graphs please and thank you.

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Question 2: [25 marks| 1. Show the short run effects of a foreign fiscal expansion on an open economy that is on a Hexible exchange rate. To answer this question, draw the following five diagrams: (a) The goods market, (b) The money market, (c) The IS-LM curves, (d) The interest parity condition, and (e) The AS-AD curves. Clearly label the initial and new equilibrium points in each diagram, as well as the reasons for all curve-shifting if applicable. Provide brief explanations for the changes. 2. How about the effects in the medium run? Assume that before the changes, the economy was at the natural level of output. To answer this question, draw the following two diagrams: (a) The AS-AD curves, and (b) The IS-LM curves. Provide brief explanations for the changes. Effects of Foreign Fiscal Expansion (Open Economy, Flexible Exchange Rate) 10 IS (Initial) IS (Long-Run) Net Exports (NX) 5 O 100 101 102 103 104 105 Output (Y) LM (Initial) 104 LM (Short-Run) 102 100 5.0 5.2 5.4 5.6 5.8 6.0 6.2 6.4 Interest Rate (r) 1.00 change Rate (Domestic per Foreign) Output (Y) Initial Exchange Rate Short-Run Exchange Rate 0.95 0.90 100 101 102 103 104 105 Output (Y)Change Returns to Natural Level Increases Increases (back to original) Decreases No Change (stays at new higher level) Downward Shift (back to original) Upward Shift Effects of Increased Government Spending in the Medium Run Aggregate Supply Aggregate Demand Interest Rate Output Price Level

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