1. With reference to the relevant four-quadrant diagram, and assuming no change in long-run exchange rate expectations, use Harvey's exchange rate model to discuss the potential impact on interest rates, exchange rates and employment of a fiscal stimulus. (4 marks)

2. During the 1970s, an unexpected increase in inflation tended to make a currency depreciate. In 2020, it is more likely that increased inflation would cause the AUD to appreciate. Identify the main reason for this apparent paradox. (2 marks)