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Suppose an economy is an open economy with imperfect capital mobility and flexible exchange rate. Using Mundell-Fleming model, analyse the effects of a decline in
Suppose an economy is an open economy with imperfect capital mobility and flexible exchange rate. Using Mundell-Fleming model, analyse the effects of a decline in government spending on output, interest rate, exchange rate and balance of payment of this economy. Would it yield the same results if the economy adopts fixed exchange rate? Explain your answer.
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