3. In a system of fairly high (but imperfect) capital mobility and a fixed exchange rate within the Mundell-Fleming open economy macroeconomic (IS-LM-BP) model, an expansionary fiscal policy can...

Question 5 solution needed

Extracted text: 3. In a system of fairly high (but imperfect) capital mobility and a fixed exchange rate within the Mundell-Fleming open economy macroeconomic (IS-LM-BP) model, an expansionary fiscal policy can result in either a surplus or a deficit in the balance of payments. Why is it so? Explain and illustrate graphically. 4. Present graphically and explain the shape of a standard Keynesian aggregate supply curve. Does the slope of a Keynesian aggregate supply curve vary depending on whether nominal (money) wage is variable (flexible) or fixed? Explain why and demonstrate graphically. Assume there is an exogenous drop in the price of imported oil. Using Keynesian graphical model and analysis, explain how such a shock would affect aggregate output and price level. Explain the role inflationary expectations play in this adjustment. 5.