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Unformatted text preview: the current account. b. Do you find that the current account worsens and that income rises, as suggested in the comment? c. Now consider a monetary contraction. Use the AA-DD-XX diagram to show its effects on income and the current account. d. Does this monetary policy response moderate the rise in income? What is the effect in the current account? Problem 2 True, False, Uncertain a. The financing of US stimulus plan should increase the US current account deficit. b. Under the flexible exchange rate regime, a permanent fiscal expansionary policy is more effective in boosting economic activity than a transitory one. c. A country needs to depreciate its real exchange rate to improve its current account. Problem 3 Krugman, Obstfeld and Melitz Chapter 17 problem 12....
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- Spring '08