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For the following questions assume that the economy starts at short-run equilibrium at the intersection of the IS/LM/BP curves. Further, assume that the BP curve is horizontal at an interest rate of 10%. For each, a diagram indicating the changes are required (no diagram, no points).

1. Show the effects of an increase in the money supply assuming exchange rates are flexible.

2. Show the effects of an increase in the money supply assuming exchange rates are fixed via non-sterilized intervention.

3. Show the effects of an increase in the money supply assuming exchange rates are fixed via sterilized intervention.

4. Show the effects of a decrease in the government spending assuming exchange rates are flexible.

5. Show the effects of a decrease in the government spending assuming exchange rates are fixed via non-sterilized intervention.

6. Show the effects of a decrease in the government spending assuming exchange rates are fixed via sterilized intervention.

7. Show the effects of a foreign recession assuming exchange rates are flexible.

8. Show the effects of a foreign recession assuming exchange rates are fixed via non-sterilized intervention.

9. Show the effects of a foreign recession assuming exchange rates are fixed via sterilized intervention.

10. Suppose Japan increases its money supply. What is the expected effect of this change on the US? Assume a flexible exchange rate.

Microeconomics, Economics

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