The Mundell-Fleming model

Consider the Mundell-Fleming model describing a small open economy using the following equations:

with,

Questions:

1 - Comment on the structure of this model.

2 - Define the differences between a fixed exchange rate system (by imposing ) and a flexible exchange rate system. Compare the structure of the IS and LM relationships obtained for each of the exchange systems. What are the differences with a closed economy model?

3- Solve using matrix calculation the macroeconomic equilibrium for an economy closed to international trade and for each of the two exchange rate regimes. Comment on the discrepancies noted. Graphically represent the results obtained.

4- Study the consequences of a monetary policy consisting in increasing the level of the money supply in fixed and flexible exchange rates by 10%. Graphically explain the result by comparing it to a closed economy solution

5 - Same question for a budgetary policy consisting of increasing the level of budgetary expenditure by10%.

6 - Under a fixed exchange rate system, study the consequences of a devaluation of the national currency by10%. Analyze the result graphically.