Answer Happy

Question 4 (5 points) If a government wanted to devalue its exchange rate with the least amount of disruption to its domestic economy then it should: inform financial markets in advance to improve confidence surprise financial markets adopt flexible exchange rates couple any announcement with a plan to expand fiscal policy Question 5 (5 points) Under fixed exchange rates, the economy will always return to equilibrium following a transitory shock provided that: there are no tariffs or other distortions to trade the Marshall-Lerner condition not only holds but is large enough to offset income effects coming through changes changes in the real exchange rate imports are a relatively small part of the economy the Marshall-Lerner condition just hold Question 6 (5 points) Under flexible exchange rates, relative purchasing power holds when: changes in the nominal exchange rate are equal to the inflation differential between the domestic and foreign economy the real exchange rate is not changing the economy is in a position of long-run equilibrium all of the options shown