Compare the effectiveness of monetary policy and fiscal policy to spur the economy under a fixed exchange rate regime. Which one is more effective, and why? (Hint: use graphs if necessary) 2. "The Linked Exchange Rate System (LERS) has been implemented in Hong Kong since 17 October 1983. Through a rigorous, robust and transparent Currency Board system, the LERS ensures that the Hong Kong dollar exchange rate remains stable within a band of HK$7.75-7.85 to one US dollar." - Hong Kong Monetary Authority (HKMA). (a) We understand that this system removes away lots of exchange risk and reduce the cost of doing business. But what arguments would you make to convince the HKMA to pursue a floating exchange rate instead? (b) During the 1997 Asian financial crisis, speculators bet that the HKMA had to devaluate the Hong Kong dollar. The HKMA raised the interest rate and made a rare intervention by buying shares directly from the stock market. Could you use what we have learnt about Balance of Payments Crises to rationalize the reaction of HKMA? 3. Discuss the benefits of capital requirements in bank regulations. 4. Greece joined the Eurozone formally on 1 January 2002 but ran into a sovereign debt crisis in late 2009. The richer northern European countries decided to bail them out, working together with the IMF and ECB. One strong argument supporting the bailout is the "doom-loop" argument. Could you explain what a doom-loop is and why other Eurozone countries should concern the crisis in Greece given the argument?