In an open economy that is on a flexible exchange rate, show the short run effects on output and interest rates of a decrease in money supply. To answer this question, draw the following four diagrams: 1. The goods market, 2. The money market 3. The IS-LM curves, and 4. The interest parity condition. Clearly label the initial and new equilibrium points in each diagram. Provide brief explanations for the changes. What is the effect on net exports?
In an open economy that is on a flexible exchange rate, show the short run effects on output and interest rates of a decrease in money supply. To answer this question, draw the following four diagrams: 1. The goods market, 2. The money market 3. The IS-LM curves, and 4. The interest parity condition. Clearly label the initial and new equilibrium points in each diagram. Provide brief explanations for the changes. What is the effect on net exports?
Chapter22: International Finance
Section: Chapter Questions
Problem 10QP
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