abinasmk

abinasmk

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AbinasIndian Institute of Technology (Indian School of Mines) - IIT (ISM) Dhanbad

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Law2Management1English1Business2Nursing1Biology2Economics7
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For the questions concerning Mundell-Fleming model, form your answers assuming the price levels to be fixed unless mentioned otherwise. Draw graphs (unless mentioned otherwise) wherever applicable and answer all questions in detail.

1. Derive IS curve in the Mundell-Fleming model.

2. How is the shape of the LM curve in the Mundell-Fleming model (considering a small open economy) different from the standard ISLM model? Discuss.

3. How does a fixed exchange rate regime govern money supply in a small open economy? Discuss using the Mundell-Fleming model. Draw graphs

4. How is a monetary expansion in the Mundell-Fleming model with floating exchange rates different from a fixed exchange rate regime?

5. Derive the Aggregate Demand Curve using the Mundell Fleming model. (Price levels are not fixed)

6. Use the sticky wage model to explain the upward sloping short run aggregate supply curve.

7. Discuss the response of a closed economy to a tax increase when the Fed decides to hold the level of income constant. (Consider a standard ISLM model)

8. If government spending increases and taxes are raised to keep the budget balanced, what happens to the aggregate demand curve? Discuss. (No need to draw graphs).

9. In a closed economy, consider � = � + � � − � , � = �, � = �, � = � + �� i. Find the equilibrium income and the tax multiplier (Δ�/Δ�). ii. Given that, b=0.75 and t=0.2, what should be the change in equilibrium income if G increases by $400. (Show your work)

10. In a closed economy without the Government, consider � = 500 + 0.8�, � =300-10r i. Find the equation of the IS curve. Plot and label the IS curve. ii. The money demand function is given by ! ! ! = � − 40�. Money supply is 400 and the price level P is 1. Find the equation of the LM curve. Plot and label the LM curve. iii. Find the equilibrium value of r and Y for that economy. (Show your work)

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