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Question 3 1. Distinguish between internal and external balance. (2 marks) Given each cases below, answer the questions that follow using the IS-LM-BP model to graphically analysis and explain. Case 1: The case of Argentina in 2001: Fixed ER, Limited Capital Mobility. Case 2: The case of U.S.A and Canada: Flexible ER, Perfect Capital Mobility 2. Explain the effects of Expansionary Fiscal Policy and Expansionary Monetary Policy. (6 marks) 3. Explain whether each of the policy above may enable the economy to achieve internal balance. (2 marks) 4. Explain the repercussions of each policy to the external sector, therefore external balance. (2 marks)
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