Problem
1. Imagine that domestic and foreign currency bonds are imperfect substitutes and that investors suddenly shift their demand toward foreign currency bonds, raising the risk premium on domestic assets (Chapter 17). Which exchange rate regime minimizes the effect on output-fixed or floating?
2. How would you analyze the use of monetary and fiscal policy to maintain internal and external balance under a floating exchange rate?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.