1. Suppose the government wishes to lower the exchange rate, ε, but not to change real output, Y. What monetary or fiscal policy, or combination of the two, does it need to use to do this? Assume that exchange rates are floating.
2. Suppose that capital mobility increases (that is, that a given change in r has a larger impact on CF than before). Does this change increase, decrease, or not affect the power of monetary policy – that is, does it cause a given change in r to have a larger, smaller, or the same impact on Y than before? Assume that exchange rates are floating.