ECONOMICS – Answer Writing Challenge, 15 July 2014
1) What is a speculative attack on a currency? Suppose the economy has a fixed exchange rate and government is following an expansionary macroeconomic policy. The government increases the budget deficit which it finances through a monetary expansion. How does it leads to a crisis? What is the timing of speculative attack? (300 words)
2) Analyze the effects of an increase in the money supply within the Keynesian model where both the price level and money wage are assumed to be variable. Include in your answer the effects on the level of real income, the price level, the interest rate and the money wage. (200 words)
