Answer to Question #45312 in Macroeconomics for Salman Miah

Question #45312
Hi I've just done an exam and a big question was show the new equilibrium output of an effect of a fall in world income. It asked to show using A) fixed exchange rate B) flexible exchange rate I've drawn 2 diagrams. For the fixed exchange rate I talked about the drop in world income and the IS schedule shifting to the left. This meant an incipitent capital outflow and bop deficit. So to prevent depreciation the central bank buys currency on the foreign exchange market. As a result of the reduction in the money supply the LM shifts left. The new equilibrium point being y', r'. However I'm confused about the flexible diagram. Using the flexible exchange rate I drew the diagram showing the IS schedule moving back to the original equilibrium. There is thus crowding out effect. The flexible exchange rate being ineffective. I can show an image if needed not the diagrams i drew. Please can someone let me know if these digrms we're correct asap. Thanks so much
Expert's answer

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!


No comments. Be first!

Leave a comment

Ask Your question

New on Blog