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New short-run equilibrium

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Reference no: EM132512227

Using the Mundell-Fleming Model, address the following scenario:

a) You are the chief economic adviser in a small open economy with a floating-exchange-rate system. Your boss, the president of the country, wishes to increase the level of output in the short run in order to win reelection. What policy recommendation will you make? Explain why.

b) Use the Mundell-Fleming model to illustrate graphically your proposed policy. Be sure to label: i) the axes; ii) the curves; iii) the initial equilibrium levels; iv) the direction the curve(s) shift; and v) the new short-run equilibrium.

Reference no: EM132512227

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