In an open economy, imagine there is no change in the monetary policy and the government makes a temporary fiscal expansion through increased government purchases. What will be the immediate impact of...

In an open economy, imagine there is no change in the monetary policy and the government makes a temporary fiscal expansion through increased government purchases. What will be the immediate impact of fiscal expansion on the domestic currency value and the level of output? Suppose there is a sudden change in the domestic consumers’ taste—favoring foreign products—resulting in a decline in domestic demand and employment. How does the monetary policy help the economy to return to its original employment level?