1. Assume you run the central bank of a large open economy with floating exchange rates.

Output, unemployment and inflation are where you want them to be. Now the fiscal

authorities pass a large tax cut. What policy should you follow to stabilize output? What

effects do you anticipate?

2. What is a current event in the last month related to exchange rates or trade (or current

account) deficits or surpluses? Include the article and analysis of the causes or effects of exchange rates or trade deficits?