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Q. For this question, utilize the Keynesian IS-LM model with flexible exchange rates. Eastland's main trading partner is Westland. Assume Westland undertakes an expansionary monetary policy.
(a) Illustrate what is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the short run, assuming no change in Eastland's policies?
(b) Illustrate WhatistheeffectofWestland'sexpansionarymonetarypolicyonEastland'srealexchangerateinthe long run, assuming no change in Eastland's policies?
(c) Illustrate what is the effect of Westland's expansionary monetary policy on Eastland's nominal exchange rate in the short run also in the long run?
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