Two Small Open Economies, Fixed and Flex, Can Be Described

question 26

Essay

Two small open economies, Fixed and Flex, can be described by the Mundell-Fleming model. The countries are otherwise identical except that Fixed maintains a fixed exchange rate, while Flex maintains a flexible exchange-rate regime. The governments of both countries increase spending by the same amount. Compare what happens in the two countries to:
a. the exchange rate,
b. equilibrium output, and c. net exports.

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Definitions:

Missionary Selling

A sales technique where the seller promotes their product by educating the customer on its benefits, often without directly pushing for a sale.

Intangible Products

Products that are not physical in nature, such as software, entertainment, or services, offering value through non-physical means.

Insurance

Contract by which the insurer for a fee agrees to reimburse the insured a sum of money if a loss occurs.