(Extra Credit) Over the past several decades, the economies of the world have become more financially integrated. That i

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Extra Credit Over The Past Several Decades The Economies Of The World Have Become More Financially Integrated That I 1 (46.67 KiB) Viewed 50 times

(Extra Credit) Over the past several decades, the economies of the world have become more financially integrated. That is, investors in all nations have become more willing and able to take advantage of financial opportunities abroad. Consider how this devel- opment affects the ability of monetary policy to influence the economy. Illustrate the answers to the following questions using the open economy IS/LM diagram. (a) If investors become more willing and able to substitute foreign and domestic assets, what happens to the slope of the CF function? 1 (b) If the CF function changes in this way, what happens to the slope of the IS curve? (c) How does this change in the IS curve affect the Fed's ability to control the interest rate? (d) How does this change in the IS curve affect the Fed's ability to control national income?