Flexible exchange rates and foreign macroeconomic policy

Reference no: EM13343008

6. Flexible exchange rates and foreign macroeconomic policy. Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition.
a. In an IS-LM-UIP diagram, show the effect of an increase in foreign output, Y*, on domestic output, Y. Explain in words.
b. In an IS-LM-UIP diagram, show the effect of an increase in the foreign interest rate, i*, on domestic output, Y. Explain in words

Reference no: EM13343008

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