3. Using the IS/LM/BP model, demonstrate the effect of each of the following changes. Assume that the economy
is a small country with perfect capital mobility (so a flat BP curve) and a fixed exchange rate (non-sterilized
intervention).
a. An increase in tax rates
b. An increase in government purchases
c. An increase in the domestic money supply
d. A fall in GDP in the rest of the world
e. An increase in the domestic price level
4. Using the IS/LM/BP model, demonstrate the effect of each of the following changes. Assume that the economy
is a small country with perfect capital mobility (so a flat BP curve) and a flexible exchange rate (non-sterilized
intervention).
a. An increase in tax rates
b. An increase in government purchases
c. An increase in the domestic money supply
d. A fall in GDP in the rest of the world
e. An increase in the domestic price level
5. Using the IS/LM/BP model, demonstrate the effect of each of the following changes. Assume that the economy
has an upward sloping BP curve (that is flatter than the LM curve) and a fixed exchange rate (non-sterilized
intervention).
a. An increase in tax rates
b. An increase in government purchases
c. An increase in the domestic money supply
d. A fall in GDP in the rest of the world
e. An increase in the domestic price level
6. Using the IS/LM/BP model, demonstrate the effect of each of the following changes. Assume that the economy
has an upward sloping BP curve (that is flatter than the LM curve) and a fixed exchange rate (non-sterilized
intervention).
a. An increase in tax rates
b. An increase in government purchases
c. An increase in the domestic money supply
d. A fall in GDP in the rest of the world
e. An increase in the domestic price level
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