IS- LM diagram.

36 You are given the following data on Country A's international transactions for the year 2003 with the rest of the world (ROW): f millions Exports of goods and services 180 Imports of goods and services 150 Interest, Profits, Dividends received from ROW 30 Interest. Profits and Dividends paid to ROW 50 Unilateral receipts from ROW 20 Unilateral payments to ROW 40 Capital inflows from ROW 80 Capital outflows to ROW 40 Statistical error 7 Increase in official reserves 25 (i) Calculate the current account balance indicating whether it is in surplus(+) or deficit(-). [1] (ii) Calculate the statistical error indicating whether it is positive(+) or negative(-). [1] (iii) State whether the increase in official reserves indicates that the Central Bank has been buying or selling (a) foreign currency (b) sterling, in the foreign exchange market. [1] (iv) State with reasons whether or not it is possible to calculate the trade balance amounts from the above set of figures. [1] [Total 4] 37 (i) Discuss the view that the best way for a country to tackle a current account deficit is to devalue its currency. In your answer, discuss what other macroeconomic policy measures may be used to reduce a current account deficit. [10] (ii) Discuss the possible advantages that adherence to a fixed exchange rate regime may have over a floating exchange rate regime. [10]35 (1) Using the IS-LM diagram explain the effects of a contractionary open market operation on the money supply, the short term rate of interest and the level of national income. [2] Using the IS-LM diagram explain the effects of an expansionary fiscal policy financed by bond sales on the money supply, the long term rate of interest and the level of national income. 12]