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Unformatted text preview: price levels. 4. A country that simultaneously has a current-account surplus and a surplus in its private (i.e., nonreserve) financial account must be accumulating foreign reserves. II. SHORT QUESTIONS. Make your answers brief and to the point. (25 points) 1. Show in a diagram how permanent monetary expansion (under a floating exchange rate) and devaluation (of a pegged rate) will affect the open economy in the short run, including the current-account balance. (You thus need to include the XX schedule.) Assume the economy starts from a position where the current account is zero. 2. A If we have a current account deficit, we are importing more in value than we are giving foreigners in exchange, and that is a good thing. @ Discuss. 3. Define the idea of purchasing power parity (PPP), and briefly discuss three reasons why it fails accurately to characterize exchange-rate movements in reality....
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This note was uploaded on 08/01/2008 for the course ECON 182 taught by Professor Kasa during the Spring '08 term at University of California, Berkeley.
- Spring '08