a) Describe how the price-specie flow mechanism of international adjustment worked to correct a balance of payments deficit under the gold standard. b) Explain why the "impossible trinity" has its name. (In other words, why is it impossible for a country to have all three conditions at the same time?) c) The figure below shows the effect of an improved investment climate in the United Kingdom (perhaps after the resolution of the Brexit problem). The economy starts at point A. Complete the diagram (with a brief description) to show where the economy would end up if: (a) the exchange rate is fixed; (b) the exchange rate is fully flexible (a free float) Exchange Rate (S/E) D1 Millions of Es d) The imposition of import restriction (such as the US tariffs on imported steel) is likely to protect jobs in the steel industry, but at the cost of jobs in other industries because of the exchange rate effects of the tariffs. Explain how that effect occurs. e) Describe the main elements and results of the Asian Financial Crisis. The diagram below shows the effect ofa monetary expansion in an open economy with a fixed exchange rate. Complete the diagram to show the secondary effect and explain how that secondary effect occurs. (The verbal description should indicate what variables are affected by the primary effect in order to induce the secondary effect.) f) a) Describe how the price-specie flow mechanism of international adjustment worked to correct a balance of payments deficit under the gold standard. b) Explain why the "impossible trinity" has its name. (In other words, why is it impossible for a country to have all three conditions at the same time?) c) The figure below shows the effect of an improved investment climate in the United Kingdom (perhaps after the resolution of the Brexit problem). The economy starts at point A. Complete the diagram (with a brief description) to show where the economy would end up if: (a) the exchange rate is fixed; (b) the exchange rate is fully flexible (a free float) Exchange Rate (S/E) D1 Millions of Es d) The imposition of import restriction (such as the US tariffs on imported steel) is likely to protect jobs in the steel industry, but at the cost of jobs in other industries because of the exchange rate effects of the tariffs. Explain how that effect occurs. e) Describe the main elements and results of the Asian Financial Crisis. The diagram below shows the effect ofa monetary expansion in an open economy with a fixed exchange rate. Complete the diagram to show the secondary effect and explain how that secondary effect occurs. (The verbal description should indicate what variables are affected by the primary effect in order to induce the secondary effect.) f)
