1. In the Mundell-Fleming model of the open-economy, what is:

a. The condition for equilibrium in the product market?

b. The condition for equilibrium in the money market?

c. The condition for equilibrium in the foreign exchange market?

2. In each of the following situations, state which (if any) curve (IS, LM, FE) will shift and in what direction (left or right).

a. The central bank decreases the money supply.

b. The government imposes tariffs on imported goods.

c. In an effort to balance its budget, the government cuts spending on health care.

d. The country's currency appreciates.

3. What do the terms internal balance and external balance mean in open-economy macroeconomics?

4. A country has a fixed exchange rate and capital is very mobile.Because it is experiencing high unemployment, the central bank increases the money supply.Using symbols and words, explain what will happen to (a) internal balance; (b) external balance; (c) the country's exchange rate.

How must the central bank respond if it wishes to maintain the fixed exchange rate?

Why is monetary policy said to be ineffective with fixed exchange rates and capital mobility?

5. In the example above (#4), the government decides to increase spending on public works to create jobs.How does this affect internal and external balance and the exchange rate?

Why is fiscal policy said to be effective with fixed exchange rates and capital mobility?

6. What are two advantages and two disadvantages of a fixed exchange rate?

7. What are two advantages and two disadvantages of a floating exchange rate?

8. What is the J-curve effect in international finance?What a some reasons that this occurs?