QUESTION 1: 10 pts total Suppose Country A and Country B are trading partners. Country A is operating at full employment and their current account balance is zero (meaning it is not in deficit or surplus). a. Assume that the exchange rate between Country ' s currency (CA) and Country B's currency (CB) changes from 1=10 to 1=8. Does Country '' currency appreciate or depreciate relative to Country '?1 b. Given your answer to part a, will each of the following increase, decrease or stay the same? i. The price of Country A's goods in Country B's currency. 1 ii. Country A's net exports. 1 c. Draw a correctly labeled Phillips Curve Graph for Country A. Include the long-run and short-run Phillips Curve. On the graph show: (basic graph 3 pts) i. The original long-run equilibrium for Country A and point (1 pt) ii. The new equilibrium that results from the change in Country A's exports (in part b ii above) as point .(1 pt) d. Given the change in net exports for Country A that you identified in part b ii above, will each of the following be in deficit, surplus or balance for Country A? i. Current Account 1 ii. Financial Account 1

d. Given the change in net exports for Country A that you identified in part b ii above, will each of the following be in deficit, surplus or balance for Country A? i. Current Account 1 pt ii. Financial Account 1 ptQUESTION 1: 10 pts total Suppose Country A and Country B are trading partners. Country A is operating at full employment and their current account balance is zero (meaning it is not in deficit or surplus). a. Assume that the exchange rate between Country A's currency [CA) and Country B's currency (CB) changes from 1 CA = 10 CB to 1 CA = 8 CB. Does Country A's' currency appreciate or depreciate relative to Country B's? 1 pt b. Given your answer to part a, will each of the following Increase, decrease or stay the same? L. The price of Country A's goods in Country B's currency. 1 pt ii. Country A's net exports. 1 pt c. Draw a correctly labeled Phillips Curve Graph for Country A. Include the long-run and short-run Phillips Curve. On the graph show: (basic graph 3 pts] I. IsThe original long run equilibrium for Country A and point X (1 pt] The new equilibrium that results from the change in Country A's exports (in part b il above) as point Y. (1 pt]