Refer to the following model of the economy for Q1-Q4 Consider the following Mundell-Fleming short-run model of a small open economy under floating exchange rates given in equations (1)-(9). Assume there 1s perfect capital mobility so that the domestic interest rate equals the world interest rate, i.e., r = r*. The nominal exchange rate is denoted by e. (HDC =600+ 06(-T) (2) I = 550-40r 4G =570 (5)T = 150+ 0.2Y (6) NX = 200-15( P /P)e (HPE =C+1+ G+ NX (7)Y =PE Goods market equilibrium (S)M?_d= 15Y-50r Mm% M3 ey 9) =7 Money market equilibrium Suppose that the central bank sets the nominal money supply M* = 6000 and that P = 2.Also suppose that the foreign price P* = 1 while the world interest rate r* = 5. 1. The equilibrium output level in this economy Y \"4 is given by A) Y* =2004.50 B) Yea=1020.48 C) Y*=2166.65 D) Y =1620.56 2. The equilibrium exchange rate e *d is given by: A) e =14.35 and we have a trade deficit B) e = 16.72 and we have a trade deficit C) e*1 = 6.32 and we have a trade surplus D) e* = 18.86 and we have a trade deficit Professor Fanny Demers 2 March 31, 2024 3. A) B) ) D) Consider a monetary expansion: If the CB (central bank) decides to increase the money supply so that MS = 7000, then equilibrium output will stay the same, but the exchange rate will increase (appreciate) increasing the trade surplus. equilibrium output will stay the same, but the exchange rate will fall (depreciate) by 2.25 units reducing the trade surplus by 105.2 units. equilibrium output will rise by about 344 units and the exchange rate will fall (depreciate) by 5.79 units reducing the trade deficit by 173.7 units. equilibrium output will rise by about 252.75 units and the exchange rate will fall (depreciate) by 3.62 units reducing the trade deficit by 155.38 units. Consider the impact of a fiscal expansion in the above economy (instead of a monetary expansion so that M3 = 6000 as before). If lumpsum taxes decrease by 100 units (i.e., A T= 100) then: A) equilibrium output will stay the same, but the exchange rate will rise (appreciate) increasing the trade deficit by 60 units. B) equilibrium output will stay the same, but the exchange rate will fall (depreciate) reducing the trade surplus by 100 units. C) equilibrium output will rise by about 1556 units and the exchange rate will fall (depreciate) by 10.5 units reducing the trade deficit by 352 units. D) equilibrium output will rise by about 1250 units and the exchange rate will fall (depreciate) by 2 units reducing the trade deficit by 50 units