FINE 673 Problem Set 8

Reviewed on 8-20

The effects of government fiscal and monetary policy on the Real Credit Market and Real Goods and Services Market are relatively easy to analyze. The effects on the foreign exchange market and on net exports is more complex as various forces often are opposed. The following problems are intended to help with this analysis. They follow directly from Marthinsen chapter 19 and 20.

1. A nation has flexible exchange rates. To mitigate the effects of a recession, the national government engages in expansionary fiscal policy. Insert the new supply and/or demand curves and insert arrows to the change in the variables on the Y and X axes.