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Assume the Exchange Rate Is Fixed

question 50

Essay

Assume the exchange rate is fixed. Using the IS- LM model, graphically illustrate and explain what effect falling consumer confidence will have on the domestic economy. In your graphs, clearly label all curves and equilibria.


Definitions:

Milton Friedman

An influential American economist known for his strong belief in free-market capitalism and a minimal role for government in the economy.

Free Market Ethics

Moral principles or standards governing fair and competitive practices in a market economy without undue government intervention.

Duty To Rescue

A legal or moral obligation to provide assistance to a person in danger or distress, under certain circumstances.

Pre-existing Duty

A rule in contract law that states if someone is already legally obligated to perform a certain duty, promising to perform that same duty does not constitute a valid consideration for a new contract.

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