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What will be the effects on real gdp

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Reference no: EM133504343

Suppose that the foreign interest rate, i *, increases and that we are in a small open economy with perfect capital mobility (for some unspecified reason and without affecting foreign GDP). The exchange rate in this economy is flexible.

Question 1: What will be the effects on real GDP, the interest rate, the exchange rate and exports? exchange rate and net exports exports of the domestic country?

Question 2: If the government wants to protect the value of the currency in a), what fiscal policy would you recommend? What will be the effect on domestic GDP?

Question 3: If the government wants to protect the value of the currency in a) but prefers to do so through monetary policy, what would you recommend? monetary policy, what would you recommend? What will be the effect on domestic GDP?

Question 4: How would your answer to a) change if the exchange rate were fixed?

Reference no: EM133504343

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