2. Analyze the following issues relating to exchange rate adjustments in the short run and the Mundell-Fleming model.

A. A country that fixes its exchange rate loses monetary policy independence. Explain.

B. In late 2017, the Trump administration cut taxes and increased fiscal spending. What would the Mundell-Fleming model predict in terms US output, interest rate, and USD exchange rate? Can you think of any notable historical precedent of a similar policy combination?

C. With a growing risk of recession due to COVID-19, among other things, the US Fed have accelerated monetary policy easing. What are the macroeconomic impacts on countries with a flexible exchange rate?

D. In the 1930s, when the world was under a fixed exchange rate system (gold standard), how did economic contraction in one country impact others?