3) In the country of Gondor, people are free to move money into and out of the country without restrictions. There is also a law that the central bank must keep Gondor's currency fixed to the US dollar. Suppose Gondor is at potential output. Think of something that could happen outside of Gondor that would force the Central Bank of Gondor to create a recession just to keep the exchange rate fixed. A) What could happen outside of Gondor? List FIVE things. i) ii) iv) v) B) If any of these things happened, how would Gondor's exchange rate change if the central bank did nothing? C) If any of these things happened, what would the central bank of Gondor have to do to stop the exchange rate from changing? D) If the Central Bank of Gondor acted to stop the exchange rate from changing, how would it affect GDP in Gondor? E) If the Central Bank of Gondor acted to stop the exchange rate from changing, how would it affect unemployment in Gondor? 3) In the country of Gondor, people are free to move money into and out of the country without restrictions. There is also a law that the central bank must keep Gondor's currency fixed to the US dollar. Suppose Gondor is at potential output. Think of something that could happen outside of Gondor that would force the Central Bank of Gondor to create a recession just to keep the exchange rate fixed. A) What could happen outside of Gondor? List FIVE things. i) ii) iii) iv) v) B) If any of these things happened, how would Gondor's exchange rate change if the central bank did nothing? C) If any of these things happened, what would the central bank of Gondor have to do to stop the exchange rate from changing? D) If the Central Bank of Gondor acted to stop the exchange rate from changing, how would it affect GDP in Gondor? E) If the Central Bank of Gondor acted to stop the exchange rate from changing, how would it affect unemployment in Gondor? 5) In the country of Gondor, people are free to move money into and out of the country without restrictions. There is also a law that the central bank must keep Gondor's currency fixed to the US dollar. Suppose Gondor is at potential output. Think of something that could happen outside of Gondor that would force the Central Bank of Gondor to create a inflation just to keep the exchange rate fixed. A) What could happen outside of Gondor? List FIVE things. i) ii) iv) v) B) If any of these things happened, how would Gondor's exchange rate change if the central bank did nothing? C) If any of these things happened, what would the central bank of Gondor have to do to stop the exchange rate from changing? D) If the Central Bank of Gondor acted to stop the exchange rate from changing, how would it affect inflation in Gondor? 7) In the country of Mordor, people are free to move money into and out of the country without restrictions. The Central Bank of Mordor also wants to be able to be able to focus on fighting recessions and inflation, not worrying about the exchange rate. Suppose Mordor is at potential output. A) What could happen OUTSIDE of Mordor that would force the Central Bank of Mordor to let the exchange rate RISE? List FOUR things. i) ii) iv) B) What could happen INSIDE of Mordor that would force the Central Bank of Mordor to let the exchange rate RISE? List FOUR things. i) ii) iii) iv) C) What could happen OUTSIDE of Mordor that would force the Central Bank of Mordor to let the exchange rate FALL? List FOUR things. i) ii) iii) iv) D) What could happen INSIDE of Mordor that would force the Central Bank of Mordor to let the exchange rate FALL? List FOUR things. i) iii) iv)
