1. Using the aggregate demand curve, graphically derive the DD curve. Tell briefly what the assumptions are. Explain what you are doing and show the sequential causal chain of effects. What does the DD curve represent? What variables shift the DD curve?

2. Using money supply-money demand and the interest rate parity relationship, derive the AA curve graphically. Tell what the assumptions are. Explain what you are doing and show the sequential causal chain of effects. What does the AA curve represent? What variables shift the AA curve?

3. Use the DD and the AA curves to determine equilibrium output (Y) and exchange rate (E). In the graph, draw the XX curve to show the combinations of Y and E for which the current account is constant. Why is the XX curve flatter than the DD line? What happens to the current account for points above the XX curve? For points below the XX curve?

4. Using the DD-AA model under flexible exchange rates, show (a) the effects of monetary policy in the short-run, and (b) the effects of monetary policy in the long-run. What accounts for the difference between the short-run and the long-run? What are the main results?

5. Using the DD-AA model under flexible exchange rates, show (a) the effects of fiscal policy in the short-run, and (b) the effects of fiscal policy in the long-run. What are the main results?

6. Using money supply-money demand and the interest rate parity relationship, show how the central bank can maintain fixed exchange rates in the face of changes in output.

7. Using the DD-AA model under fixed exchange rates, show the effects of monetary policy. What are the main results?

8. Using the DD-AA model under fixed exchange rates, show the effects of fiscal policy. What are the main results?

9. Using the DD-AA model under fixed exchange rates, show the effects of a devaluation policy. What are the main results?

10. Using money supply-money demand and the interest rate parity relationship, show how the central bank can deal with a balance of payments crisis and capital flight.