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(12 points in total) Consider a small open economy with the fixed exchange rate curve of this economy is given as I system. T

2) Suppose that the government increases its spending (G) to 125. Find out the new equilibrium values of output (2) and net e

please go through all the steps so I can fully understand how to solve. Thank you !

(12 points in total) Consider a small open economy with the fixed exchange rate curve of this economy is given as I system. The LM 1-10 000r-200 +(M) and the IS curve is given as Y=100+4G-10,000r + NX, where NX 600-300e. Suppose that P -1,G -100, and the world interest rate () is 0.025, Suppose further that the exchange rate is fixed at e-1. 1) Find out the equilibrium values of output (0) and net export (NX) of this economy, Also find out the amount of money supply (M) that keeps the exchange rate at e 145 points)
2) Suppose that the government increases its spending (G) to 125. Find out the new equilibrium values of output (2) and net export (NX) of this economy. (Assume that P is fixed at 1.) Also find out the amount of money supply (M) that keeps the exchange rate at e 1. Is the expansionary fiscal policy effective in this economy? (7 point)
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20.000- 200 t Lm m-250 LNM 20000 0-o5) L00 1 oSgo 25300500-200 + M Scanned wit CamScan02g -: 300 S35 Scanned with CamScanner

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