You may assume that there are open capital markets, and that prices are sticky in the short run but perfectly flexible in the long run. For full marks, be sure to label any diagrams clearly and completely.

4.What is an important use case for digital currencies? Explain the channel by which the existence of private digital currencies may discipline government policy.

5.Using diagrams that compare fixed and floating exchange rates, demonstrate how floating exchange rates act as automatic stabilizers. Explain the logic that is illustrated by your diagrams.