QUESTION-1: TRUE/FALSE. Provide brief explanation to justify your answer. (5 Marks each) A. If a country has a current account deficit then it is investing more than it savers. B. If both covered and uncovered interest parity (IRP) hold then the forward exchange rate is an unbiased predictor of the future spot exchange rate. C. Higher domestic interest rates cause the domestic currency to appreciate when real interest rate is fixed. D. According to Uncovered Interest Parity (UIRP), exchange rate changes should be predictable. E. Purchasing Power Parity does not apply to an economy when it pegs its currency to the US dollar. F. The "rules of the game" under the gold standard can best be described as selling domestic assets in a deficit and buying assets in a surplus. G. Home output falls more under a floating rate than under a fixed rate in response to an adverse temporary export demand shock. [Diagram required] H. Under PPP (and by the Fisher Effect), A rise in a country's expected inflation rate will eventually cause a less than proportional rise in the interest rate that depositors of its currency offer to accommodate the rise in expected inflation. 1. The Marshall-Lerner Condition states that the sum of import and export elasticities must be equal to one in order for depreciation to occur. J. The J-curve illustrates the long-term effects of depreciation on the current account. [diagram required)