Consider a small open economy in the short run where the government imposes trade tariffs on corn.
(a) Given a floating exchange rate sketch a graph of the impact of the tariffs on IS-LM. (
b) With a floating exchange rate how does the trade tariffs impact the sale of domestic corn? Other export goods?
(c) Given a fixed exchange rate sketch a graph of the impact of the tariffs on IS-LM.
(d) With a fixed exchange rate how does the trade tariffs impact the sale of domestic corn? Other export goods?
(e) Under which regime (floating or fixed exchange), are the tariffs more effective in increasing output?
(f) Under which regime does the money supply increase by more or less, why?