IcelandA Small Country in a Global Crisis

These questions are based on the mini case study on iceland- a small country in a global crisis.

1. How does the Iceland story fit with our understanding of the Impossible Trinity? In your opinion, which of the three elements of the Trinity should Iceland have taken steps to control more? Which of the three impossible trinity elements should iceland have used to help them solve their financial crisis.

2.In the case of Iceland, the country was able to sustain a large current account deficit for several years, and at the same time have ever-rising interest rates and a stronger and stronger currency. Then one day, it all changed. How does that happen? Why did iceland fall financially after doing so well for many years?