Question no 1

Question 5 (5 points} Consider Delta, an economy with constant prices under a xed exchange rate regime described by a standard open economy \"IS-LM-interest parity\" model. Delta's central bank is determined to keep the exchange rate constant at the chosen level E = E1, and individuals expect it to do so also in the future, so that E = E1 = E": . Having explained which value the domestic interest rate will necessarily take on in this economy, suppose that, starting from an equilibrium position, net taxes and autonomous consumption rise in Delta by the same amount, so that a? = Eco } 0. Which of the three curves IS, LM, interest parity will be affected by this change, and why? In the move from the initial equilibrium to the new one that the economy will reach, how will Delta's equilibrium levels of production, interest rate, exchange rate, consumption, investment and net exports will change? And what about money supply? Explain