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1. Using the IS-LM-FX model, illustrate how each of the following scenarios affect the Home country. Compare the outcomes when the Home country has a fixed exchange rate with the outcomes when the Home currency floats. In each diagram, Point B denotes the outcome with floating exchange rates. Point C denotes the outcome with fixed exchange rates. A. The Foreign country increases the money supply. B. The Home country cuts taxes. C. Investors expect a future appreciation in the Home currency.

1. Using the IS-LM-FX model, illustrate how each of the following scenarios affect the Home country. Compare the outcomes when the Home country has a fixed exchange rate with the outcomes when the Home currency floats. In each diagram, Point B denotes the outcome with floating exchange rates. Point C denotes the outcome with fixed exchange rates. A. The Foreign country increases the money supply. B. The Home country cuts taxes. C. Investors expect a future appreciation in the Home currency.

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter13: Open-economy Macroeconomics: Basic Concepts
Section: Chapter Questions
Problem 4CQQ
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1. Using the IS-LM-FX model, illustrate how each of the following scenarios affect the Home country. Compare the outcomes when the Home country has a fixed exchange rate with the outcomes when the Home currency floats. In each diagram, Point B denotes the outcome with floating exchange rates. Point C denotes the outcome with fixed exchange rates. A. The Foreign country increases the money supply. B. The Home country cuts taxes. C. Investors expect a future appreciation in the Home currency.
Transcribed Image Text:1. Using the IS-LM-FX model, illustrate how each of the following scenarios affect the Home country. Compare the outcomes when the Home country has a fixed exchange rate with the outcomes when the Home currency floats. In each diagram, Point B denotes the outcome with floating exchange rates. Point C denotes the outcome with fixed exchange rates. A. The Foreign country increases the money supply. B. The Home country cuts taxes. C. Investors expect a future appreciation in the Home currency.
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