Question 1

(a) Explain the relationship between exchange rate and the balance of payments. (15 marks)

(b) Show income determination in a closed economy in contrast to an open economy using the concepts of income as determined by injections (like investment and exports) and leakages (like saving and imports). (Hint: discuss in words like Singapore, with a high reliance on international trade and capital flows, is an open economy) (15 marks)