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Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model, graphically illustrate and explain what effect an increase in government spending will have on the domestic economy. In your
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SOLVED: In the IS-LM-BP model, suppose that the balance of payments equilib rium condition is aE-a2Y+b(i-i*)=0 where E is the nominal exchange rate, Y is output, i is home interest rate and
