Macroland Is a Small Open Economy with Perfect Capital Mobility

question 108

Essay

Macroland is a small open economy with perfect capital mobility and a flexible-exchange-rate system. Macroland is initially in equilibrium at the natural level of output with balanced trade. Compare the impact of a tax cut in the short run (when prices are fixed) and in the long run (when prices are flexible) on: (a) output, b) consumption, (c) investment, (d) net exports, and (e) the exchange rate.

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Definitions:

Fearful

Being fearful involves experiencing apprehension or anxiety in response to perceived threats or danger.

Busy Street

A roadway characterized by high levels of vehicular and pedestrian traffic, often found in urban centers.

Secondary Reinforcer

A stimulus that has become rewarding through its association with a primary reinforcer.

Operant Behavior

Behavior that operates on the environment, producing consequences.