Question 1
Explain how the original Phillips curve differs from the expectations-augmented Phillips curve (or the modified, or accelerationist Phillips curve).
Question 2
Explain what effect a decrease in the future expected interest rate will have on the IS curve and LM curve in the current period.
Question 3
Suppose the interest parity condition holds. Also assume that the one-year interest rate in Australia (home country) is 6% and that the one-year interest rate in Canada (foreign country) is 6%. What does this imply about the current versus future expected exchange rate (for the Australian and Canadian dollars)? Explain.