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Author Question: Illustrate with a graph the effects of fiscal policy when exchange rates are fixed. What will be ... (Read 125 times)

plus1

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on: Jun 30, 2018
Illustrate with a graph the effects of fiscal policy when exchange rates are fixed.
 
  What will be an ideal response?

Question 2

What are the factors affecting the demand for foreign currency?
 
  What will be an ideal response?


Awesome

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Draw horizontal BP curve. Fiscal policy shifts IS. Monetary policy must accommodate by shifting LM to match IS in order to maintain fixed exchange rate.

Answer to Question 2

Three factors affect the demand for foreign currency. They are expected return, risk, and liquidity.


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