1. (a) Using the appropriate diagrams for each case describe what happens to the economic activity and the inflation rate when there is a fiscal expansion under the assumption that:
(i) The economy is extremely monetarist
(ii) The economy is extreme Keynesian
(iii) The economy is neither monetarist nor Keynesian
(d) Explain why under fixed exchange rates the monetary policy is not effective.
2. (a) Discuss the advantages and disadvantages of free international trade.
(b) Describe the speculative attacks that hit UK pound sterling in autumn of 1992.
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