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Unformatted text preview: True/False/Uncertain, explain in the context of the DD-AA model. Question 5: Consider two countries: Home (H) and Foreign (F). Home government has 2 policy options: increase taxes (T ↑ ), and decrease taxes (T ↓ ). Foreign central bank has 2 policy options: increase money supply (MS* ↑ ), and decreases money supply (MS* ↓ ). The payoff matrix is: Foreign MS* ↑ MS* ↓ Home T ↑ 2, 6 4, 5 T ↓ 3, 4 1, 2 (Home’s payoff, Foreign’s payoff) a) Write down the strategies for both countries. b) If both countries choose their policies simultaneously, find the Nash equilibrium. Does the problem of coordination failure exist? Explain. Chapter 20 – Optimum Currency Areas and the European Experience Question 1: Problems #5 Question 2: Problems #6 (No need to draw the diagram, just explain in words only). 1...
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This note was uploaded on 12/21/2011 for the course ECONOMICS ECMC61 taught by Professor Dr.irisau during the Fall '11 term at University of Toronto.
- Fall '11
- International Economics