14. (6 points) Suppose that an economy is under a credible fixed exchange rate regime (constant nominal exchange rate).

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14 6 Points Suppose That An Economy Is Under A Credible Fixed Exchange Rate Regime Constant Nominal Exchange Rate 1 (29.48 KiB) Viewed 54 times

14. (6 points) Suppose that an economy is under a credible fixed exchange rate regime (constant nominal exchange rate). Assume that in this economy, for every one dollar increase in output (given a fixed interest rate and a fixed real exchange rate), the sum of consumption and the trade balance rises by 0.75 dollars. Suppose that government expenditures (G) and tax revenues (T) both fall by $1 bn. Calculate the dollar change in output in the short run (when nominal prices are constant).