1. Assume you run the central bank of a small open economy with fixed exchange rates.

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

authorities pass a massive tax cut. What policy, if any, should you follow to stabilize

output? Why is your answer different from the prior question? (Hint: This is a trick

question.)

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?