a)Compare the short-run impacts if a permanent increase in
money supply versus a permanent tax cut. Keep in mind that a permanent policy
alters people’s expectations, which in turn shifts the AA curve.

b)Compare the long-run impact of a permanent increase in
money supply versus a permanent tax cut.

c)What important exchange rate phenomenon underlies
permanent policy changes that does not extend to temporary policy changes?
Under which type of policy, monetary or fiscal, is this phenomenon responsible
for accentuating the policy’s short-run impact on income/output, and under
which policy does it partially reverse the income/output impact?

Other questions:

b)What are the costs and benefits of fixed versus flexible
international exchange rate systems? Looking over the last 80 years, which
system do you think would work best in the future? Explain.

c)What are the factors that determine an optimal currency
union? Would the Canadian adoption of the U.S. dollar be optimal given these
factors? Explain.

d)Explain why both fiscal and monetary policy under a fixed
exchange rate regime require the central bank to buy or sell foreign assets.
Under what circumstances is there a role for monetary policy under a fixed
exchange rate regime?

e)Drawing the economic zones of discomfort, show the policy
combination required to take an economy to internal and external balance if it
is below full-employment with an excess current account surplus.

f)Explain how international banking and the growth in global
capital markets has enhanced the gains from trade, including an explanation of
the different types of gains. What are the possible negative consequences of
growth in these markets?