problem 1: describe the international monetary system termed as the Bretton Woods system, or the gold exchange standard that existed from the mid 1940s to the early 1970s. How did the system work? Why did it finally break down?
problem 2: Why do you assume that small countries select to peg their exchange rates, while the largest countries float their currencies?
problem 3: To aid in its efforts to get reelected, the current government of a country decides to raise the growth rate of the domestic money supply by two percentage points. The increased growth rate becomes ‘permanent’ as once started it is difficult to reverse. What do you think will happen to the exchange rate value of this currency in the long run? Why? What does this say about purchasing power parity (PPP)?
problem 4: Will the law of one price (PPP) applies better to gold or Big Macs? describe why?