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Question 24 [20 marks] Australia is considered as a small open economy with a llexible exchange regime. Using iS-LM, ASAD and interest parity UP} graphs
Question 24 [20 marks] Australia is considered as a small open economy with a llexible exchange regime. Using iS-LM, ASAD and interest parity UP} graphs under the MundeII-Fleming model: a} Show the impact of a reduction in price target on output, the interest rate, the nominal exchange rate, real exchange rate and price level in the short run. [3 marks] b) Show the impact cl a reduction in price target on output, the interest rate, the nominal exchange rate, real exchange rate and price level in the medium run. (3 marks) c} Discuss the overshooting of the nominal exchange rate. [4 marks)
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