Answer to Question #63541 in Macroeconomics for Hans

Question

Use the Mundell-Fleming model to analyze the demand side in the AD-AS model. Assume perfect capital mobility and fixed nominal exchange rates. Compare the initial equilibrium value of the nominal money supply M_0 with the new equilibrium value M_1 after an unexpected one-time fall in the domestic price level. Mark the correct statement.

Select one or more:
a. M_0 < M_1
b. M_0 = M_1
c. We cannot make an unambiguous statement about the relationship between M_0 and M_1
d. M_0 > M_1

Answer 1

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