Using expansionary or contractionary monetary-fiscal policy

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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.

1) Do you recommend using expansionary or contractionary monetary or fiscal policy? Why?

2) 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 curves shift; and v. the new short-run equilibrium.

Reference no: EM131108558

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