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Under a floating rate, monetary policy can affect output, why is this the case? Please explain...

Under a floating rate, monetary policy can affect output, why is this the case? Please explain by contrasting with a fixed rate.

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Answer #1

I am providing both cases, the monetary policy in the case of fixed exchange rate and monetary policy under flexible or floating exchange rate with the assumption of perfect capital mobility (Mundell Fleming model).

Monetary Policy under Flexible Exchange rate system:

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