QUESTION 5 Select all that are true regarding the balance of payments accounting: In a fixed exchange rate system the current and financial accounts will exactly offset since the exchange rate does not move A current account deficit allows a country to "live" beyond its means In a perfectly flexible (freely floating) exchange rate system, there is no need for foreign reserves if world political economies are stable. A financial account deficit suggest that the country is increasing its debt QUESTION 6 Select all of the following that are true: An appreciation of the currency will reduce the GDP of a country A country can "export" its inflation by appreciating its currency, which is consistent with monetary policy An appreciation of the domestic currency unambiguously increases the profits of domestic firms that have no foreign or export operations An appreciation of the domestic currency reduces the reported profits of multi-national firms domiciled in the domestic country (assume no factor changes)