Suppose the Government of a Small Open Economy with a Floating

question 122

Essay

Suppose the government of a small open economy with a floating exchange rate imposes 50 percent tariffs on all imports. Use the Mundell-Fleming model to illustrate graphically the short-run impact of the tariffs of the exchange rate and output in the country. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium levels; iv. the direction the curves shift; and v. the new short-run equilibrium.

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