3. (16 pts) The Mundell-Fleming model takes the world interest rate r* as an exogenous variable. Ifr* were to increase,

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3. (16 pts) The Mundell-Fleming model takes the world interest rate r* as an exogenous variable. Ifr* were to increase,

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3 16 Pts The Mundell Fleming Model Takes The World Interest Rate R As An Exogenous Variable Ifr Were To Increase 1
3 16 Pts The Mundell Fleming Model Takes The World Interest Rate R As An Exogenous Variable Ifr Were To Increase 1 (152.39 KiB) Viewed 27 times
3. (16 pts) The Mundell-Fleming model takes the world interest rate r* as an exogenous variable. Ifr* were to increase, a) in a small open economy with flexible exchange rates, what would happen to aggregate income, the exchange rate, and the trade balance? b) in a small open economy with fixed exchange rates, what would happen to aggregate income, the exchange rate, and the trade balance? Briefly explain your answers in a) and b) and illustrate with appropriate graphs or descriptions.
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