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Open economy with fixed exchange rates

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Reference no: EM132479175

Assume you run the central bank of a small open economy with fixed exchange rates. Output, unemployment and inflation are where you want them to be. Now the fiscal authorities pass a massive tax cut. What policy, if any, should you follow to stabilize output? Why is your answer different from the prior question? (Hint: This is a trick question.)

Reference no: EM132479175

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