Home Page EC 340, International Trade and Finance Files EC 340 Problem Sets Flexible Exchange Rates

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1. "A drop in the foreign demand for our exports has a larger effect on our national product and income under flexible exchange rates than it would under fixed exchange rates." Do you agree or disagree? Why?

2. Would a tightening of monetary policy by the Federal Reserve lower national income more with flexible exchange rates or fixed exchange rates? Why?

3. True or false and explain why: Under a system of flexible exchange rates, a balance of payments deficit causes national income to increase.

David A. Latzko 318 COB Department of Business and Economics Wilkes University Wilkes-Barre, PA 18766 phone: (717) 408-4718 fax: (717) 408-4917 dlatzko@wilkes.edu wilkes1.wilkes.edu/~dlatzko