What is the appropriate fiscal and monetary policy mix

Reference no: EM13900737

1. Consider an open economy with flexible exchange rates. Suppose output is at the natural level, but there is a trade deficit. What is the appropriate fiscal and monetary policy mix?

2. In this chapter, we showed that a monetary expansion in an economy operating under flexible exchange rates leads to an increase in output and a depreciation of the domestic currency.

a. How does a monetary expansion (in an economy with flexible exchange rates) affect consumption and investment?

b. How does a monetary expansion (in an economy with flexible exchange rates) affect net exports?

Reference no: EM13900737

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