ECON303 Tutorial 4 - Econ303 International Money and...

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Unformatted text preview: Econ303: International Money and Finance Tutorial 4 A. Short answer questions 1. A new government is elected and announces that it will increase the money supply in a year. Use the AA ‐ DD model to study the economy’s response (i.e. Y, E and CA) to this announcement. 2. Analyse how domestic output, the exchange rate and the current account will be affected by a temporary increase in foreign demand for money. 3. Using AA ‐ DD model, demonstrate how a permanent increase in domestic demand for real money balances will affect output, exchange rate and the current account in the short run and in the long run. 4. Assume that the government decides to have balanced budget (G=T) at all times. Thus, if the government decides to increase its spending, it must increase taxes by the same amount. Does this mean that the government can no longer use fiscal policy to affect employment and output?...
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This note was uploaded on 05/26/2010 for the course ECON 1160 taught by Professor Byrke during the Spring '10 term at Macomb Community College.

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ECON303 Tutorial 4 - Econ303 International Money and...

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