Problem
Suppose in the New Keynesian open-economy model, that there is an increase in future total factor productivity.
(a) Under a flexible exchange rate, what are the equilibrium effects? Should economic policy respond to the change in future productivity? If so, how?
(b) Now suppose that there is a fixed exchange rate. Repeat part (a).
(c) Explain your results.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.