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IS-LM Model — Monetary Policy, Floating Rate (No Capital Mobility): True or False? #Shorts

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IS-LM Model — Monetary Policy, Floating Rate (No Capital Mobility): True or False? #Shorts

True or False? Test yourself on the IS-LM / Mundell-Fleming model of a small open economy. Statement: Under a floating rate with no capital mobility, a monetary expansion has no effect on output. Answer: FALSE It raises output and imports, opening a trade deficit that depreciates the currency; the depreciation raises net exports and reinforces ...

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