Two small open economies-fixed and flex

Reference no: EM13685969

Two small open economies, Fixed and Flex, can be described by the Mundell%u2013Fleming model. The countries are otherwise identical except that Fixed maintains a fixed exchange rate, while Flex maintains a flexible exchange-rate regime. The governments of both countries increase spending by the same amount.

Compare what happens in the two countries to:

1. Net exports.

2. Equilibrium output

3. The exchange rate

Reference no: EM13685969

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