a) What is WaIras's Law. Explain how equilibrium is achieved in an economy with 5 markets.

b) The asset market in the Portfolio Balance Model is in equilibrium when all three assets market, that is, money market, the domestic and foreign bonds markets, clear at the appropriate domestic interest rate and exchange rate.' Explain this statement

c)In the Dornbusch model the uncovered interest rate parity (UIP) condition is assumed to be hold continuously, that is, if the domestic interest rate is lower than the foreign interest rate then there need to be an equivalent expected rate of appreciation of the domestic currency to compensate for the lower domestic interest rate." Explain this statement.

d) There are two (2) ways that authorities may try to finance increased government expenditure (G):

a. By printing extra money and using the money directly to finance its expenditure

b. By borrowing that is by selling bonds to economic agents