An economy is described by a goods-market equilibrium Y=C(Y)+I(r)+G+NX(Y,e) and a money-market equilibrium M/P=L(Y,r), with C=Cˉ+σ(Y−T), T=τY, I=Iˉ−δr, NX=Xˉ−μY−γe, L=Lˉ+αY−βr, and r=rˉ, M=Mˉ, P=Pˉ fixed. Drawing IS and LM in the (Y,e) plane with Y horizontal and e vertical. In this case
(Same model.) An increase in Pˉ results in
Tap an option to check your answer.
Answer and worked solution
Checking your account…
Plain-text version
Setup, from Q51 of the paper: An economy is described by a goods-market equilibrium Y=C(Y)+I(r)+G+NX(Y,e) and a money-market equilibrium M/P=L(Y,r), with C=C̄+σ(Y-T), T=τ Y, I=Ī-δ r, NX=X̄-μ Y-γ e, L=L̄+α Y-β r, and r=r̄, M=M̄, P=P̄ fixed. Drawing IS and LM in the (Y,e) plane with Y horizontal and e vertical. In this case (Same model.) An increase in P̄ results in (A) an increase in the equilibrium value of Y and a decrease in the equilibrium value of e (B) a decrease in the equilibrium value of Y and an increase in the equilibrium value of e (C) a decrease in the equilibrium value of Y and a decrease in the equilibrium value of e (D) none of the above
Also written as: Setup, from Q51 of the paper: An economy is described by a goods-market equilibrium Y=C(Y)+I(r)+G+NX(Y,e) and a money-market equilibrium M/P=L(Y,r), with C=C_bar+sigma(Y-T), T=tau Y, I=I_bar-delta r, NX=X_bar-mu Y-gamma e, L=L_bar+alpha Y-beta r, and r=r_bar, M=M_bar, P=P_bar fixed. Drawing IS and LM in the (Y,e) plane with Y horizontal and e vertical. In this case (Same model.) An increase in P_bar results in
Open-economy macroeconomics has come up 55 times in 7 exams since 2006.
What this question tests
This question is on The Mundell-Fleming model: IS, LM and BP, part of Open-economy macroeconomics in International Economics.
The open-economy extension of IS-LM with a balance-of-payments schedule.
TestStop has 12 past-paper questions on this subtopic; the nearest in year are below.