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a) If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed ? Please describe with the aid of a diagram.

b) Show how an expected devaluation could lead to a balance of payments crisis. Please describe with the aid of a figure.

c) What is the short run impact of a temporary fiscal expansion under fixed exchange rates? Would the short run impact of a permanent fiscal expansion be different?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945554

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