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Q1- graphically demonstrate and explain wheather or not the degree of capital mobility will affect monetary...

Q1- graphically demonstrate and explain wheather or not the degree of capital mobility will affect monetary policy under flexible exchange rates?

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Answer #1

The impact of associate open market purchase of domestic securities within the context of versatile charge per unit can lead to a rise in bank reserves, a multiple growth of cash, and downward pressure on the speed of interest.

An expansionary financial policy can shift the luminous flux unit curve to LM’ that moves the equilibrium from purpose E0 to E1. Since the exchange rates square measure versatile, the balance of payment deficit can depreciate the domestic currency. this may} increase internet exports (since foreigners can currently obtain a lot of of our products) and shifts the LS curve to the correct –LS’. the ultimate equilibrium is reached at purpose E2. financial policy works dead below these circumstances.

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