1. What does the term policy Trilemma mean?
Explain with the help of an international currency.
2. What is currency overshooting?
Using an example of a permanent decrease in money supply, explain with the help of graphs, how the money market and forex market respond to the change in the short run and in the long run.
3. Define:
a. Gross National Expenditure
b. Gross Domestic Product
c. Gross National Income
d. Gross National Disposable Income
e. Current Account
f. Capital Account
g. Trade Balance
Explain clearly the relationship between the above terms.
What is the significance of these definitions in understanding the phenomenon of the â€œCeltic Tigerâ€?
4. With the help of a graph, derive the IS curve and show how the goods market and the forex market interact when interest rate rises.
5. Read the attached article â€œECB Gets Strength in Negative Ratesâ€ and answer the following questions:
a. â€œThe central bank wants to boost lending by banks to businesses and consumers and boost inflation.â€
How does lending by banks to businesses and consumers boost inflation?
Use graphs and/or equations to explain why the ECB expects the bond buying to increase inflation.
According to many investors, what is a better tool to achieve the same goal?
b. Explain with the help of graphs and formulae how a lower interest rate would lower the value of the Euro.
c. â€œA cheaper euro makes exports more competitive â€¦.â€
How does a cheaper Euro effect trade balance?
Using the goods market Keynesian Cross graph and the IS diagram, show how a cheaper Euro will affect Income and the IS curve.
d. â€œExchange rates are hugely influenced by the difference in interest rates between currency areas.â€
What principles can explain this phenomenon?
Use appropriate formula to explain this.

1. What does the term policy Trilemma mean? Explain with the help...