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    This document contains an assignment for a macroeconomics course involving exchange rates and the balance of payments. It lists 4 long questions asking students to explain whether a fiscal contraction will worsen the current account, why fiscal and monetary policy are more effective under certain exchange rate regimes using models like Mundell-Fleming, how fiscal policy is more effective with imperfect capital mobility under a fixed exchange rate, and how foreign output changes affect domestic output under fixed and floating rates depending on capital mobility using the IS-LM model.

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    This document contains an assignment for a macroeconomics course involving exchange rates and the balance of payments. It lists 4 long questions asking students to explain whether a fiscal contraction will worsen the current account, why fiscal and monetary policy are more effective under certain exchange rate regimes using models like Mundell-Fleming, how fiscal policy is more effective with imperfect capital mobility under a fixed exchange rate, and how foreign output changes affect domestic output under fixed and floating rates depending on capital mobility using the IS-LM model.

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    17 views1 page

    PS 9

    Uploaded by

    Justin
    This document contains an assignment for a macroeconomics course involving exchange rates and the balance of payments. It lists 4 long questions asking students to explain whether a fiscal contraction will worsen the current account, why fiscal and monetary policy are more effective under certain exchange rate regimes using models like Mundell-Fleming, how fiscal policy is more effective with imperfect capital mobility under a fixed exchange rate, and how foreign output changes affect domestic output under fixed and floating rates depending on capital mobility using the IS-LM model.

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    © All Rights Reserved
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    HE1002 Macroeconomic Principles

    Problem Set 9
    Exchange Rates and the Balance of Payments

    Long Questions

    1. A temporary fiscal contraction will worsen the current account. True, false or uncertain? Explain
    your answer.

    2. Explain why with perfect capital mobility, fiscal policy is more effective under fixed exchange
    rates than floating, and explain why monetary policy is more effective under floating exchange
    rates than fixed (Use the Mundell-Fleming model. You should explain the intuition, as well as
    providing a graphical analysis).

    3. In a country with fixed exchange rate, imperfections in capital mobility make fiscal policy more
    effective (compared to a case with perfect capital mobility).

    4. Use the IS-LM model to determine how an increase in the foreign output will affect domestic
    output under fixed and floating exchange rate regimes. How does your answer depend on the
    degree of capital mobility?

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