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Mundell-fleming model

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Reference no: EM132405732

A small open economy has unexpectedly announced that it will default on its debt in the foreseeable future.

  1. Using the Mundell-Fleming model, what would be the effect of this default? Please make sure to include all variables affected by this outcome.
  2. In particular, using the Mundell-Fleming model alone, what is the expected effect on income? Does this effect on income make sense? Explain why or why not.

Reference no: EM132405732

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