Effectiveness of fiscal and monetary policies

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Reference no: EM13983859

Suppose that a formerly closed small economy becomes open.

a) What will happen to the effectiveness of fiscal and monetary policies in affecting GDP if the economy operates under flexible exchange rate? Illustrate your answers graphically. (Answer separately for fiscal and monetary policies)

b) How does your answer to part (a) change if the economy operates under fixed exchange rate? Illustrate your answer graphically. (Answer separately for fiscal and monetary policies)

Reference no: EM13983859

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