1. In the Mundell-Flemming model with floating exchange rates, explain what happens to aggregate income, the exchange rate and the trade balance when taxes are reduced.Contrast what would happen if exchange rates were fixed rather than floating?(10marks)
2. In the Mundell-Flemming model with floating exchange rates, explain what happens to aggregate income, the exchange rate, and the trade balance when the money supply is increased. Contrast what would happen if exchange rates were fixed rather than floating?(10marks)
3. In the Mundell-Flemming model with floating exchange rates, explain what happens to aggregate income, the exchange rate, and the trade balance if a quota on imported cars is implemented. Examine what would happen if exchange rates were fixed rather than floating?(10marks)
4. Evaluate TWO advantages of managed exchange rates(5marks)and TWO advantages of fixed exchange rates(5marks)