Macroland is a small open economy with perfect capital mobility and a

fixed-exchange-rate system. Macroland is initially in the long-run equilibrium at the

natural level of output with balanced trade. With the help of an appropriate diagram,

compare the impact of a tax cut in the short run (when prices are fixed) and in the long

run (when prices are flexible) on:

16.Output,

17.Consumption,

18.Investment,

19.Net exports

20.Exchange rate.