1) Suppose Canada imposes high tariffs on Japanese automobiles. The intention is to make autos produced in Japan so expensive for Canadians to buy that they choose instead to purchase autos

constructed in Canada. Advocates of the policy contend this will create new employment in

Canada. Assuming the Bank of Canada maintains a flexible exchange rate, will this trade policy

prove effective? Explain thoroughly. What if the Bank of Canada maintains a fixed exchange rate, how would be your answer? Explain thoroughly.

2) Some economists believe that the short-run Phillips curve is relatively steep and shifts quickly in

response to changes in the economy. Would these economists be more or less likely to favour

contractionary policy in order to reduce inflation than economists who had the opposite views? What do such beliefs imply about

the benefits of using policy to reduce unemployment?

the costs of using policy to reduce inflation? Explain thoroughly.

3) Use the AD/AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.