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These questions give you practice in answering Part B typeexam questions. Hand in only one answer(prepare for as long as you like; but write your answer in 40 minutesonly).
Prepare outline answers (1 pagemax.) for the other questions and be prepared to present your answer on theboard in class.
4.1
Consider an open economy characterized byhigh unemployment and low inflation. Evaluate the proposal that a “two-handed”strategy combining supply-side and demand-side policies should be implemented.
4.2
Taking into account their current account balance and fiscalpositions (see Table 1), and the prevailing exchange rate regimes, use theshort, medium and long run open economy models you have learnt in this courseto discuss the merits of Germany, the UK and the US undertaking adeficit-financed fiscal stimulus as a response to the current recession.
You are advisedto include in your answer:
(a) thepredictions from the models
(b) how themodels can be applied to the countries in question under the currentcircumstances. You need to refer to Table 1 in your answer.
| Table 1. | |||
| Country | Current account (% GDP), 2005-7 average | Public sector primary deficit, cyclically adjusted, 2005-7 average | Gross public debt (% GDP), 2007 |
| Germany | 6.3 | 1.15 | 65.5% |
| UK | -5.3 | -1.18 | 46.9% |
| US | -6.7 | -1.06 | 62.9% |
4.3
In an article in the Economist in 2005, the author asked whether the exchange ratesbetween the twelve countries of the euro area have been permanently fixed.Provide an answer to this question in which you include an assessment of theimplications of your answer for policy makers at national level and in the ECB.
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