EC 340

Problem Set #10 - Flexible Exchange Rates

Due by the end of class on April 27, 1998.

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