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(Solved): 5. Within the Mundell - Fleming assuming perfect capital mobility, analyze the effects of a positi ...



5. Within the Mundell - Fleming assuming perfect capital mobility, analyze the effects of a positive shock to money demand (i

5. Within the Mundell - Fleming assuming perfect capital mobility, analyze the effects of a positive shock to money demand (i.e., an increase in the demand for money for give levels of income and interest rate). Consider the effect of the shock on the income when the fixed exchange rate and when flexible exchange rate.


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Answer: A positive shock to money demand is a situation in which the demand for money increases for a given level of income and interest rate. This in
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