a) If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed ? Please describe with the aid of a diagram.
b) Show how an expected devaluation could lead to a balance of payments crisis. Please describe with the aid of a figure.
c) What is the short run impact of a temporary fiscal expansion under fixed exchange rates? Would the short run impact of a permanent fiscal expansion be different?