Questions and Answers of International Economics 5th

Compare the costs of an MNC operating in a foreign country with the costs of domestic firms operating in that country. Explain how an MNC can compete under these circumstances.
Suppose that A is a small open economy that takes world prices as given. What would be the effect on wages and rents in A if it were to experience an outflow of foreign capital? Use a diagram to
What is immizerizing growth? Do you think it is likely to occur in the real world? Explain.
Identify whether each of the following is a debit or a credit in the country of Freedonia’s BOP and indicate where the item would be classified.a. Freedonian firms export $$250$ million worth of
Consider each of the following events. For each, identify relevant, determine whether it is a debit or credit entry; and calculate the statistical discrepancy entry for the U.S. BOP table.a. Ford
Suppose that foreigners decided that financial investments in the United States were not a good idea. What would they do? What effect would these actions have on the value of the dollar and U.S.
Japan has run large current account surpluses for much of the past two decades, yet no one ever asks if these surpluses are sustainable. Why are surpluses treated differently than deficits?
Use the information in the following table on Switzerland’s international transactions to answer the following questions (amounts are millions of U.S. dollars):a. What is Switzerland’s balance of
Suppose that one euro costs 80¢ on January 1. Suppose that on March 1, one euro costs 75¢. What has happened to the value of the dollar (in terms of euros) over this period?
Using the information in Exercise 1, imagine that you are a purchasing agent for a domestic firm and you are thinking about buying goods from a European firm.DATA FROM EXERCISE 11. Suppose that one
Using Table 12.1, calculate the price of 1 Australian dollar in terms of Japanese yen on Friday October 7, 2011. Currency Name In U.S. Dollars In Foreign Currency Americas Argentina peso 0.2353
According to Table 12.1, were one-month interest rates higher in the United States or Canada on Friday October 7, 2011? How do you know? Currency Name In U.S. Dollars In Foreign Currency Americas
Suppose that the spot price of a euro is $$1.00,$ the one-year forward rate on euros is $$1.05,$ and the interest rate on 1-year euro-area deposits is 10 percent. What would the interest rate
Draw a figure such as Figure 12.1 to illustrate equilibrium for a particular currency in the foreign-exchange market. Now, show what would happen to the exchange rate (under flexible rates) and the
Consider the information presented here (all values are in US$):a. Let E denote the spot exchange rate and F denotes the one-month forward rate. Derive the formula that shows how F is determined in
You can analyze changes in foreign exchange rates by using supply and demand diagrams. Construct an example for the $$/£$ exchange rate wherein the dollar appreciates relative to the pound.
Over the past two centuries, there have been two extended periods of worldwide fixed exchange rates, the international gold standard and the Bretton Woods system. Compare and contrast these two
Suppose that we are in the early days of the Bretton Woods system, and France has declared a par value for the French franc at FF6 per dollar. The allowable fluctuation band is 1 percent on either
Suppose Switzerland is on the gold standard and it maintains a strict ratio of gold in its vaults to money (Swiss francs) in circulation. Suppose that it runs a balance of payments deficit.What will
List three factors relevant for a country’s choice of an exchange rate system. Using the United States as an example, explain how these factors may have affected U.S. policy regarding floating
The one-year interest rate on Swiss francs is 5 percent, and the dollar interest rate is 8 percent.a. If the current $$/SF$ spot rate is $$0.60$ and uncovered interest rate parity holds in the
Assume the three-month interest differential for Swiss francs minus British pounds is equal to -0.05 percent. The sixmonth interest differential is equal to -0.03 percent. Is the British pound
Suppose the term structure of interest rates is rising for the United States and falling for Japan. If this is all you know, what can you say about the expected change in the yen/dollar exchange rate?
If two countries had identical term structures of interest rates, how would you expect the forward premium or discount to change over time?
Suppose that the current price of one British pound is $1.59 and three-month interest rates in both the United Kingdom and the United States is equal to 3 percent. If uncovered interest rate parity
Suppose that the three-month interest rate in Australia is 2 percent and it equals 4 percent in the United States. Suppose further that the three-month forward rate on the Australian dollar (A$) is
Suppose that the three-month forward rate on the euro is $$1.43$ but you think that the spot price in three months will be $$1.39$. Using only the forward market, what actions you should take and
Suppose that you have the following data on exchange rates and prices:a. Calculate the percentage change in E, P, and PF for each of the years after 2005.b. Where was inflation higher (home or
Suppose that a Big Mac costs $$5.00$ in New York and SF30 in Geneva. Suppose further that the price of 1SF on that day is 20¢. Calculate the purchasing power parity exchange rate between the Swiss
Since PPP rarely holds at any point in time, is there any substantive meaning to the terms overvalued or undervalued currency? Explain.
For what types of goods does the law of one price hold quite well?
Suppose that on January 1, the price of one hundred yen was 80¢ and PPP held. Over the year, the Japanese inflation rate was 5 percent, and the U.S. inflation rate was 10 percent. If the exchange
Suppose at the beginning of the year, a textbook sells for €60 in Paris, France, and $60 in New York City, and PPP holds. Over the year, there is an inflation rate of 10 percent in France and no
What is the real exchange rate? What happens to the value of the real exchange rate over time if absolute PPP always holds? How do changes in the real exchange rate indicate whether currencies are
Suppose that economic growth in Mexico suddenly slows, all other things held constant. According to the monetary approach to exchange rates model, what should happen to the dollar price of the
Suppose that domestic money demand is falling at 2 percent per year while the money supply is rising at 6 percent per year. What is happening to the domestic price level? Explain.
Suppose that εD = 0.75 and eD F = 0.5 for a given country:a. Are import demands elastic or inelastic in this case?b. Does the Marshall-Lerner condition hold? How do you know?c. Suppose that domestic
Define internal and external balance, and give an example of how the pursuit of one might cause a problem in achieving the other.
How does a coordinated intervention policy help bring about a convergence of macroeconomic policies?
Suppose that the U.S. Congress imposes an increase in taxes. Use the simple macro model developed in the chapter to predict the impact of this policy on output and the current account balance.
Suppose that China allows its currency to float and its exports to the United States fall significantly. How would this impact Chinese output level and its current account balance? Identify an
Assume that the marginal propensity to save is 0.4 and the marginal propensity to import is 0.2. Calculate the change in the equilibrium level of national income if investment spending declines by
Use the Swan diagram to show identify the appropriate policy choices for a country experiencing an inflationary boom and a current account deficit. What Zone is the economy in?What policies should
Let us characterize an economy as follows:i. Find the value of the open economy multiplier ii. What is the equilibrium level of GDP for this economy?iii. Suppose that exports were to rise by 200,
Consider the following economy:i. Find the value of the open economy multiplier. ii. What is the equilibrium level of GDP for this economy?iii. What is the initial current account balance for this
Consider a devaluation that raises EX0 to EX1 and lowers autonomous import expenditures from IM0 to IM1. Draw a graph that shows the impact of these changes on the equilibrium level of output and the
Consider the economy described in question 10. Use the algebra of the model to calculate the changes in Y and the CAB brought on by the devaluation.
What are IBFs? Where did the initial growth of IBF business come from?
What kind of debt is rescheduled in a Paris Club arrangement? Why is an IMF standby loan agreement required before a Paris Club meeting?
Researchers typically look at Eurocurrency interest rates rather than country-specific bank quotations when they test for the validity of covered interest rate parity. What do you think is the
How might debt/equity swaps help solve an international debt problem? Point out the benefits and drawbacks from the viewpoint of the debtor country. Why do you think the debt/ equity swap market has
Assume instead that the spot exchange rate between the dollar and Swiss franc is a fixed or pegged rate within a narrow band around a central rate. For each change shown in Problem 9, assume that
You are an analyst following a medium-sized country that has a fixed exchange rate of 5 dinars per U.S. dollar (with a band of 2 percent above and below this par value).During March of last year you
“It is best for a country never to borrow from foreign lenders.” Do you agree or disagree? Why?
Developing a new exportable natural resource can cause problems. One, discussed later in this chapter, is the problem of “immiserizing growth”:If you are already exporting and your export
Pugelovia’s growth has been oriented toward expansion of its export industries. How do you think Pugelovia’s terms of trade have been changing during this time period?
A number of Latin American countries export coffee and import other goods. A longterm drought now reduces coffee production in the countries of this region. Assume that they remain exporters of
Why does the Heckscher–Ohlin theory predict that most research and development (R&D) activity is done in the industrialized countries?
Explain the effect of each of these on the shape and position of the country’s production-possibility curve:a. A proportionate increase in the total supplies (endowments) of all factors of
A free-trade equilibrium exists in which the United States exports machinery and imports clothing from the rest of the world. The goods are produced with two factors:capital and labor. The trade
A free-trade equilibrium exists in which the United States exports food and imports clothing. U.S. engineers now invent a new process for producing clothing at a lower cost. This process cannot be
A country is initially in a free-trade equilibrium, in which it is producing 40 units of wheat and 64 units of cloth. The country exports cloth and imports wheat. Growth now occurs in the country’s
Country B is a small country that allows free trade with the rest of the world. There are two products, oats and newts. Country B initially can produce oats, but initially it cannot produce newts
During the 1950s both North Korea and South Korea were mostly closed to international trade. Both were very poor and had low rates of growth of production (or income) per person.Since the 1960s,
Nearly all governments impose tariffs (taxes) on some imports into their countries. Most governments do not impose additional taxes (duties) on their exports. Still, WTO rules allow countries to
What is the minimum quantitative information you would need to calculate the net national loss from a tariff in a small price-taking country?
What is the production effect of a tariff? How would you describe it in words, without reference to any diagram or numbers? How would you show it on a diagram, and how would you compute its value?
You have been asked to quantify the effects of removing a country’s tariff on sugar.The hard part of the work is already done: Somebody has estimated how many pounds of sugar would be produced,
As in Question 5, you have been asked to quantify the effects of removing an import duty;somebody has already estimated the effects on the country’s production, consumption, and imports. This time
For the international trade market for bicycles shown in Figure 8.5, demonstrate that a rather large tariff, for instance, a tariff that resulted in imports of 0.33 million bicycles, would not be an
This problem concerns the effective rate of protection. With free trade, each dollar of value added in the domestic cloth-making industry is divided as follows: 40 cents value added, 30 cents for
“A good way to understand why a large country can gain by imposing a tariff is that the country gets foreigners to pay some of its taxes.” Do you agree or disagree? Why?
A small country has a straight-line, upward-sloping domestic supply curve and a straight-line, downward-sloping domestic demand curve for one of its key export products. The world price for this
Voluntary export restraints provide for rich interplay between economics and politics. Let’s look at two examples. In the first, the United States forced one key exporter, Japan, to limit its
Governments have shown perhaps their greatest trade-policy creativity when deciding in what categories different imported goods belong. Their decisions are by no means academic. The stakes are high
What are import quotas? Why do some governments use them instead of just using tariffs to restrict imports by the same amounts? Is it because quotas bring a bigger national gain than tariffs?
Under what conditions could an import quota and a tariff have exactly the same effect on price and bring the same gains and losses (given a tariff level that restricts imports just as much as the
To protect American jobs, the U.S. government may decide to cut U.S. imports of bulldozers by 60 percent. It could do so by either (a) imposing a tariff high enough to cut bulldozer imports by 60
A small country imports sugar. With free trade at the world price of $0.10 per pound, the country’s national market is:The country’s government now decides to impose a quota that limits sugar
For a small country, consider a quota and an equivalent tariff that permit the same initial level of imports. The market is competitive, and the government uses fixed favoritism to allocate the quota
A Japanese friend asks you to explain and defend American use of Section 301.What will you say?
Suppose that the U.S. government is under heavy pressure from the Rollerblade and K2 companies to put the brakes on imports of Bauer in-line skates from Canada. The protectionists demand that the
A small country initially has free trade in motorcycles, it has one local motorcycle producer, and imports account for over half of local motorcycle sales. The government has decided to impose a
“In comparison to the GATT, two advantages of the WTO are that(a) the WTO has been more successful in completing rounds of multilateral trade negotiations and(b) the WTO has a better dispute
Do you like to eat things that are sweet? If you do, and if you live in the United States, the European Union, or Japan, then you are a victim of your country’s protectionist policies toward sugar.
A single firm’s innovations in production technology often benefit the production of other firms because these other firms learn about the new technology and can use some of the ideas in their own
Can you describe plausible conditions under which a nation would benefit from subsidizing imports of a good?
“The infant industry argument is not really an argument for a tariff on imports of a product.” Do you agree or disagree? Why?
Do you favor or oppose the government policy of offering extra adjustment assistance to workers displaced by increasing imports? Why?
Elected legislative representatives are considering enacting a quota on imports of baseball bats, with the rights to import the quota amount of bats to be given for free to the three companies that
In Chapter 2 we introduced the one-dollar, one-vote metric. If political decisions in a small country about imposing tariffs were based on this metric, how many tariffs would this country have?
A country currently has free trade in men’s t-shirts, and the country imports half of its total domestic consumption. The government of the country has fully committed to the goal of reducing the
Dumping laws and antidumping procedures sound technical and boring. The firms that use antidumping complaints to get protection from imports like it that way. Nobody else is much interested in
What are the two official definitions of dumping ?
“U.S. antidumping policy uses its injury test to ensure that antidumping duties imposed by the U.S. government enhance U.S. national well-being.” Do you agree or disagree? Why?
Which of the following three beverage exporters is dumping in the U.S. market? Which is not? How do you know? (Japan) $10 10 Average cost Price charged at the brewery for domestic sales Banzal
What is persistent dumping? Does an exporter lose profit because of the low export price? Does persistent dumping harm the importing country?
What would happen to world welfare if the United States paid exporters a subsidy of $$5$ for every pair of blue jeans they sold to Canada, but Canada charged a $$5$ countervailing duty on every
In the Airbus-versus-Boeing example in Figure 11.7, what strategy should the EU governments follow if the upper-left box ( a ) gives Airbus and Boeing each a sure gain of 5 or ( b ) gives Boeing a
You have been hired to write a defense of the idea of having a government plan to subsidize the expansion of an export-oriented industry, taking resources away from the rest of the economy. Describe

Showing 100 - 200 of 893