International Finance

ECON476v7  Assignment 2B  June 18, 2013 

ECON 476v7 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. 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.)

3. Outline the development of the European Monetary System. Why did it develop?

4. Historically the gold standard was the anchor for nearly every traded currency.

Explain how the gold standard worked as nations traded domestically and internationally at fixed exchange rates.

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.