1. In early 1994, Mexico was adhering to a fixed-exchange-rate system. Use the Mundell-Fleming model to illustrate graphically the short-run impact on the exchange rate and level of output of increased country risk caused by the Chiapas uprising and the assassination of presidential candidate Colosio.
2. The so-called stabilization plans based on a nominal exchange-rate-anchor are considered better than the so-called orthodox plans but they can also led to many problems. What are those problems? What are the solutions? Why prices and wages are not good nominal anchors? Explain the differences Mexico, Argentina and Brazil stabilization plans based on a nominal exchange-rate anchor related to consumption, capital inflow and exchange rate behavior.