Econ 476 Assignment 2
FinanceAceEcon 476 Assignment 2
Assignment 2
Assignment 2 is worth 15% of your final grade, and should be done after you have
completed Units 6 through 9. Read the requirements for each question and plan your
responses carefully. Answer all five questions.
Although your responses should be concise, ensure that you answer all portions of each
question completely. The objective of this assignment is for you to synthesize the material
presented in Units 6 through 9, and to consider each question rationally and logically.
1. Graphically demonstrate and explain whether or not the degree of capital mobility
will affect monetary policy under flexible exchange rates.
2. Provide a review of the developments that led to the demise of the Bretton Woods
system of fixed exchange rates.
3. 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.)
4. 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.
5. 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.
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