Tutorial 12_2009 - ECON1002 Introductory Macroeconomics, S2...

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ECON1002 Introductory Macroeconomics, S2 2009 Tutorial Tasks 1 R EADING G UIDE : BOF C HAPTERS 16 AND 17. Y OU SHOULD ALSO LOOK OVER YOUR LECTURES NOTES FOR W EEK 12. K EY C ONCEPTS : F IXED EXCHANGE RATE , SPECULATIVE ATTACKS , SAVING , INVESTMENT AND THE C URRENT ACCOUNT , CAPITAL FLOWS . P ROBLEMS 1. The demand for and supply of shekels in the foreign exchange market is Demand = 30,000 – 8,000 e, Supply = 25,000 + 12,000 e, where the nominal exchange rate is expressed as dollars per shekel. a. What is the fundamental value of the shekel? b. The shekel is fixed at 0.30 dollars. Is the shekel overvalued, undervalued, or neither? Find the balance-of-payments deficit or surplus in both shekels and dollars. What happens to the country’s international reserves over time? c. Repeat part b for the case in which the shekel is fixed at 0.20 dollars. 2. Use a demand and supply diagram to illustrate the effects of a speculative attack on an overvalued exchange rate. 3.
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This note was uploaded on 04/14/2010 for the course ECON 1002 taught by Professor Markmelatos during the Three '10 term at University of Sydney.

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Tutorial 12_2009 - ECON1002 Introductory Macroeconomics, S2...

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