Business, 23.11.2019 05:31 batmanmarie2004

Flexible exchange rates and responses to changes in foreign macroeconomic policy. suppose there is an expansionary fiscal policy in the foreign country that increases y, and at the same time the foreign central bank raises i .
(a) in an is-lm-ip diagram (ip for the interest parity relation), show the effects of the increase in foreign output y* and the increase in the foreign interest rate i* , on domestic domestic output y and the exchange rate (e), when the domestic central bank leaves the policy interest rate unchanged. briefly explain in words.
(b) in an is-lm-ip diagram, show the effects of the increase in y* and the increase in i* on the domestic output (y ) and the exchange rate (e), when the domestic central bank matches the increase in the foreign interest rate with an equal increase in the do-mestic interest rate. briefly explain in words
(c) in an is-lm-ip diagram, show the required domestic monetary policy following the increase in y* and the increase in i* , if the goal of domestic monetary policy is to leave domestic output y unchanged. briefly explain in words. when might such a policy be necessary?

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Flexible exchange rates and responses to changes in foreign macroeconomic policy. suppose there is a...

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