FIXED ERR: Suppose that Policy Makers find that the economy is below full potential, and they want to use FISCAL POLICY to restore output back to the fullemployment level of output (call this Ybar). State the policy that will accomplish the goal and then analyze the impact of the policy on the economy under a fixed exchange rate answering the questions below. a. Provide the YY-LL diagram to illustrate the impact; include the CA=alph curve. Label everything. b. Provide a complete discussion of the impact on the economy. Make sure to discuss the intuition and to explain what is the impact on interest rate, output, Y,E, employment, foreign reserves, CA,KA,EX,IM, and C. Discuss. c. As part of your answer discuss the role of the Central Bank. (if you have done this in part b. then just write "see part b) d. How would your answer be different under a floating ERR? Briefly discuss and illustrate on the diagram in part a). Do not draw a new diagram in part d; the impact under floating must be included on the figure in part a. FIXED ERR: Suppose that Policy Makers find that the economy is below full potential, and they want to use FISCAL POLICY to restore output back to the fullemployment level of output (call this Ybar). State the policy that will accomplish the goal and then analyze the impact of the policy on the economy under a fixed exchange rate answering the questions below. a. Provide the YY-LL diagram to illustrate the impact; include the CA=alph curve. Label everything. b. Provide a complete discussion of the impact on the economy. Make sure to discuss the intuition and to explain what is the impact on interest rate, output, Y,E, employment, foreign reserves, CA,KA,EX,IM, and C. Discuss. c. As part of your answer discuss the role of the Central Bank. (if you have done this in part b. then just write "see part b) d. How would your answer be different under a floating ERR? Briefly discuss and illustrate on the diagram in part a). Do not draw a new diagram in part d; the impact under floating must be included on the figure in part a
