From question 1: Imagine that you run a central bank in a
floating exchange rate regime. Your current goal is to stabilize
real GDP by keeping it constant, and you control the money supply
to do so.
From Question 1 Imagine That You Run A Central Bank In A Floating Exchange Rate Regime Your Current Goal Is To Stabili 1 (59.32 KiB) Viewed 48 times
2. Continue with the scenario from question 1, but now suppose your current goal is to maintain a particular exchange rate target. Using the open economy IS/LM model, what happens to GDP, the interest rate, and the trade balance (net exports) in response to each of the following shocks (illustrate the changes in the 3-pane diagram and then summarize your findings): (a) The president of your country cuts taxes. (b) The president circumvents the central bank and increases the money supply with- out your approval.
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