(d) Can the government of a less-than-fully employed economy stimulate employ- ment without putting pressure on the interest rate (and the foreign exchange rate)? Show how the government can engineer an appreciation of the currency without harming employment. Distinguish the two cases of fixed and flexible exchange rates. (e) Explain why a small open economy with fixed exchange rates is extremely sensitive to shocks in world trade. Is it possible to use monetary or fiscal policy to counter the effects of world trade shocks?

(d) Can the government of a less-than-fully employed economy stimulate employ- ment without putting pressure on the interest rate (and the foreign exchange rate)? Show how the government can engineer an appreciation of the currency without harming employment. Distinguish the two cases of fixed and flexible exchange rates. (e) Explain why a small open economy with fixed exchange rates is extremely sensitive to shocks in world trade. Is it possible to use monetary or fiscal policy to counter the effects of world trade shocks?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter18: Globalization

Section: Chapter Questions

Problem 13E

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