FIG 39.2 - MONETARY POLICY WITH FIXED EXCHANGE RATES & PERFECT CAPITAL MOBILITY Monetary policy is powerless to influence economic activity fixed under exchange rates perfect and capital mobility FIG 39.3-FISCAL POLICY WITH FIXED EXCHANGE RATES & PERFECT CAPITAL MOBILITY Starting from full equilibrium, an increase in government spending creates a significant stimulus to real activity in the short run, but in the long run it leads to a higher and a price level balance of payments deficit. Interest rate Price level 0 0 Interest rate Price level (0 IS/LM GAS/AD Yo National income X 015/LM LRAS National income Y, Y National income LRAS LM SRAS yo y, Y₂ LM₁ AD BB LM 88 SRAS, SRAS AD

FIG 39.2 - MONETARY POLICY WITH FIXED EXCHANGE RATES & PERFECT CAPITAL MOBILITY Monetary policy is powerless to influence economic activity fixed under exchange rates perfect and capital mobility FIG 39.3-FISCAL POLICY WITH FIXED EXCHANGE RATES & PERFECT CAPITAL MOBILITY Starting from full equilibrium, an increase in government spending creates a significant stimulus to real activity in the short run, but in the long run it leads to a higher and a price level balance of payments deficit. Interest rate Price level 0 0 Interest rate Price level (0 IS/LM GAS/AD Yo National income X 015/LM LRAS National income Y, Y National income LRAS LM SRAS yo y, Y₂ LM₁ AD BB LM 88 SRAS, SRAS AD

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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