1 - The economy is growing well and is threatening to overheat and grow too quickly. The finance ministry has advised the government to strengthen the currency in order to slowdown exports and thus help the economy slowdown to a more manageable level. As well, the finance ministry wants the government to raise income taxes as this will also slowdown the economy. The prime minister has asked you, as her chief economic advisor, for your views. In particular, she wishes to know the following:

1(a) - Would a stronger currency really decrease net exports, and why? Your advise on this is ____________________ (provide your answer and justification).

1(b) - What would be the potential upside (i.e. advantage) of raising income taxes, with respect to government finances, and is that going to negatively or positively impact on future economic growth? Your advise on this is ____________________ (provide your answer and justification).

2 - Demonstrate numerically (and briefly explain your answer with words) how raising government debt could actually potentially end up lowering the debt-to-GDP ratio?