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Mikros is a small open economy with perfect capital mobility. Suppose the government of Makros, a large open economy, cuts its government expenditure. Use the
Mikros is a small open economy with perfect capital mobility. Suppose the government of Makros, a large open economy, cuts its government expenditure. Use the classical model of a small open economy to briefly discuss and explain the long-run impact of this contractionary foreign fiscal policy on the following indicators. a. The real interest rate of Mikros. (1.5 marks) b. The real exchange rate of Mikros. (1.5 marks)
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