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A country decided to adopt a fixed exchange rate policy and expansionary fiscal policy under the
assumption of nonmonetary financing and constant money stock (vertical LM curve). Discuss
the potential implication on the exchange rate and how the country can keep the rate fixed?
Provide graphical illustration using the Mundell-Fleming model

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A country decided to adopt a fixed exchange rate policy and expansiona.pdf

  • 1. A country decided to adopt a fixed exchange rate policy and expansionary fiscal policy under the assumption of nonmonetary financing and constant money stock (vertical LM curve). Discuss the potential implication on the exchange rate and how the country can keep the rate fixed? Provide graphical illustration using the Mundell-Fleming model