Exercise 2 Just as what happens with the choice of exchange rate regime, the choice of the exchange rate level also has highly important electoral implications. Governments cannot directly choose the real exchange rate for their respective economies, but can affect their short-run tendency. In this context, answer what the following items request.

a. What are the trade-offs associated with the exchange rate level, that is, what are the costs and benefits of an excessively appreciated currency? Explain your answers.

b. Present the economic impacts of unexpected exchange rate depreciation. What are the distributive impacts between the productive sectors and consumers in an event of this nature?