For This Question,use the Keynesian IS-LM Model with Flexible Exchange

question 75

Essay

For this question,use the Keynesian IS-LM model with flexible exchange rates.
Eastland's main trading partner is Westland.Suppose Westland undertakes an expansionary monetary policy.
(a)What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the short run,assuming no change in Eastland's policies?
(b)What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the long run,assuming no change in Eastland's policies?
(c)What is the effect of Westland's expansionary monetary policy on Eastland's nominal exchange rate in the short run and in the long run?

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Definitions:

NPV Profile

A graphical representation showing the relationship between the Net Present Value (NPV) of a project and various discount rates.

Certainty Equivalent NPV

A method that adjusts the net present value (NPV) of an investment by incorporating the decision maker's risk aversion, providing a risk-adjusted NPV under certainty.

Traditional NPV

Net Present Value; a method of evaluating the profitability of an investment by calculating the present value of expected future cash flows minus the initial investment cost.

Beta

A measurement of the volatility of a stock or a portfolio in comparison to the market as a whole.