Short run where the government decreases the tax rate

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Reference no: EM13987099

Consider a small open economy in the short run where the government decreases the tax rate.

(a) Given a floating exchange rate sketch a graph of the impact of the tax decrease

(b) What direction (+/-/or no change) does the tax decrease impact: Y, Money Demand, r, e, and C

(d) What direction(+/- or no change) does the tax decrease impact: Y, Money demand, r,e and C

(e) You own a hat company which sells both domestically and abroad. Therefor your total sales are a function of the exchange rate and total domestic consumption. Which regime would tour prefer in the case?

Reference no: EM13987099

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