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Consider a country under a fixed exchange rate that is open to capital mobility (UIP holds). Prices are fixed and all foreign variables are constant.
Consider a country under a fixed exchange rate that is open to capital mobility (UIP holds). Prices are fixed and all foreign variables are constant. Is there a combination of changes in government spending (G) and monetary policy (i.e. changes in money supply Ms) the government can use to increase the trade balance while keeping output unchanged? If the answer is yes, describe qualitatively such a combination of changes in G and Ms
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