Macroeconomic Policy and Floating Exchange Rates

1. Reducing inflation using monetary policy is easier if there is international capital mobility. Show why this true.

2. Discuss the different effects of the following policy mixes:

a. Expansionary fiscal policy and expansionary monetary policy.

b. Expansionary fiscal policy and contractionary monetary policy.

c. Contractionary fiscal policy and expansionary monetary policy.

d. Contractionary fiscal policy and contractionary monetary policy.