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Compare and contrast the effect of a rise in government spending on an economy under a)...

Compare and contrast the effect of a rise in government spending on an economy under a) fixed and b) floating exchange rate.

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Answer #1

Rise in government spending is a fiscal policy measure.

The following tabpe shows the effect of this policy on various factors.

Floating exchane rate Fixed exchange rate
Output (Y) No change Increase
e (exchange rate) Increase No change
Net export (NX) Decrease No change

(t) Fiecal Peticy under Fleibe exchANGE RATE LM Domestic Interest Rate 3) Capital mflaw Bo Exchange nate fa TS Dotlar Dem and Increase Is Fall in exchenge kata epost rdue Iin Ex Fisca Peuicn under FixED ExCHANGE RATE LM LMI Bof ㄚ IS IS y) yemesthe Interest nate foresin nteret Lde 3) Capital Infte *) Memen Supply (Hxed Exchange Rate) 6) 窜£nterest late bact , exchange Ante back-, γ↑

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