1. Using appropriate models or theories, explain the economic intuition (logic) behind the following events.
a. An increase in money supply leads to a fall in short-run interest rate.
b. An increase in real income leads to a rise in short-run interest rate.
2. Using the IS/LM/BP model and assuming perfect capital mobility, explain:
a. how a decrease in foreign income affects domestic output.
b. how an appreciation of the domestic currency affects domestic output.
3. Graphically demonstrate and explain whether or not the degree of capital mobility will affect monetary policy under flexible exchange rates.
4. Provide a review of the developments that led to the demise of the Bretton Woods system of fixed exchange rates.
5. What happens to domestic income in the AS-AD model when the price of a critical, imported, intermediate input suddenly rises? (Assume the demand for the input is inelastic.)
6. Low-income nations have a dilemma as to whether to fix or float the currency exchange rates. There are many factors that affect their decisions and how effectively they can manage a financial system. Discuss a few of these factors that contribute to the success of a policy.
7. Some remedies and preventive measures have been put forth to slow or forestall currency crises, such as capital controls and intermediate regimes (i.e., fixed or floating exchange rates). Discuss these measures and comment on whether they would be effective. Explain why or why not.