Questions and Answers of International Economics 5th

Following the Schuman Plan, “the six” (Belgium, France, West Germany, Italy, the Netherlands, and Luxembourg) set up the European Coal and Steel Community.Meanwhile, Benelux is formed by Belgium,
How are trade creation and trade diversion defined, and what roles do they play in the world gains and losses from a trade bloc?
Homeland is about to join Furrinerland in a free-trade area. Before the union, Homeland imports 10 million DVD recorders from the outside-world market at $$100$ and adds a tariff of $$30$ on each
Suppose that the United States currently imports 1.0 million pairs of shoes from China at $$20$ each. With a 50 percent tariff, the consumer price in the United States is $$30$.The price of shoes
In a presentation about Serbia’s future entry into the European Union, the speaker indicates that the effects of trade creation will be equal to about 2 percent of Serbia’s GDP, the effects of
Draw a graph like Figure 12.3B. Initially the embargo is the one shown in this graph.Then, half of the nonembargoing countries switch and become part of the embargo.Use your graph to show how this
Which of the following trade policy moves is most certain to bring gains to the world as a whole: ( a ) imposing a countervailing duty against an existing foreign export subsidy,( b ) forming a
Does a rise in national production and income per capita tend to worsen or improve air pollution, water pollution, and sanitation? Explain.
Which of the following probably violate the rules of the WTO?a. A country’s government places a tax on domestic production to reduce pollution caused by this production.b. A country’s government
Oil spills from oceangoing tankers are rare but bring huge damages to coastlines when they occur within 200 miles of shore. Unfortunately, most tanker spills do occur on or near coasts. Rank the
Which of the following would do most to cut the global buildup of carbon dioxide over the next 30 years?a. Elimination of all subsidies to energy use.b. Restoration of the original tropical rain
Use your no. 2 pencil to write down your views on this trade-and-environment debate:According to the Rainforest Action Network (RAN), a rain-forest wood called jelutong is being logged at a dangerous
Draw a graph like the one in Figure 13.5, which shows the effects of transborder pollution.There is no governmental agreement on how to control the pollution, so the German firm is dumping 180 tons
Rhinoceroses are an endangered species. Worldwide, the number of rhinos has decreased 90 percent in the past 50 years, to about 28,000. Since 1977, CITES has had a ban on international trade in rhino
In 1989, a massive transition from central planning to market economies began in the formerly socialist countries of Central and Southeastern Europe. With the breakup of the Soviet Union in 1991, the
List the main pros and cons of taking the import-replacing road to industrialization versus concentrating government aid and private energies on developing new manufacturing exports.
“The terms of trade move against primary producers in the long run.” What is the evidence in support of this proposition? How solid is the evidence?
The United States, China, India, Brazil, and Turkey are forming an international association known as Tobacco’s Altruistic Raisers (TAR) to increase the world price of tobacco.TAR’s members
Consider Figure 14.3, which shows what a cartel can do if it can act as a monopolist.In Figure 14.3, the cartel supplies the entire world market.a. What is the effect on the cartel’s
“As long as increasing exports of less-skilled-labor-intensive manufactured products are leading to rising employment and rising real wages for its workers, a developing country has no interest in
Some developing countries (including Ghana) are encouraging development of local production of basic business services like call centers and data entry, to become an important destination for
In 2008 India and Vietnam restricted their rice exports to prevent increases in their domestic rice prices, and world rice prices temporarily tripled. In 2011 the government of Thailand, at that time
Our discussion in the text stresses that multinationals succeed by using their firm-specific advantages throughout their global operations. We have also noted that most foreign direct investments are
It is widely suspected that immigrants are a fiscal burden, swelling the rolls of those receiving public assistance, using public schools, and raising police costs more than they pay back in taxes.
“Most FDI is made to gain access to low-wage labor.” Do you agree or disagree? Why?
“Multinational enterprises often establish affiliates using little of their own financial capital because they want to reduce their exposure to risks.” Do you agree or disagree? Why?
Why does much FDI occur in such industries as pharmaceuticals and electronic products, while little FDI occurs in such industries as clothing and paper products?
A firm has affiliates in both Japan, whose corporate income tax rate is 40 percent, and Ireland, whose corporate income tax rate is 15 percent. The major activity of the Irish affiliate is to produce
A country currently prohibits any FDI into the country. Its government is considering liberalizing this policy. You have been hired as a consultant to a group of foreign firms that want to see the
“As Chinese companies expand their FDI into the United States by establishing new affiliates and expanding existing affiliates, U.S. imports from China will tend to decrease.” Do you agree or
“The size of remittances can affect the conclusion about whether or not a sending country gains from international migration.” Do you agree or disagree? Why?
For each of the following observed changes in wage rates and migration flows from the low-wage South to the high-wage North, describe one shift in conditions that, by itself, could have caused the
Review the areas of gain and loss to different groups in Figure 15.4. Why do the migrants gain only areas e and f ? Why don’t they each gain the full southern wage markup ($$3.20$ − $$2.00$)?
Japan currently has a very low rate of immigration because of very restrictive Japanese government policy. You are trying to convince your Japanese friend that Japan should change its laws to permit
Your Japanese friend, from Question 17, is skeptical. What are her three strongest arguments that Japan should continue its policy of permitting little immigration?Data From Question 17Japan
Which of the following kinds of immigrants probably contributed the greatest net taxes, after deducting public-assistance and similar payments, to the U.S. government?Which probably contributed the
What is the current account balance of a nation with a government budget deficit of $$128$ billion, private saving of $$806$ billion, and domestic capital formation of$$777$ billion?
“National saving can be used domestically or internationally.” Explain the basis for this statement, including the benefits to the nation of each use of its saving.
Which of the following transactions would contribute to a U.S. current account surplus?a. Boeing barters a $$100$ million plane to Mexico in exchange for $$100$ million worth of hotel services on
“For a country that has a surplus in its current account and wants to reduce this surplus, one way to do so would be to encourage its people to save more and spend less.” Do you agree or disagree
Which of the following can effectively provide financing for a country’s current account deficit?a. Residents of the country sell foreign government bonds (that they had previously purchased) to
For the past year, a country has $$200$ million of exports of goods and services, $$160$ million of imports of goods and services, $$60$ million of income received from foreigners, and
What are the effects of each of the following on the U.S. international investment position?a. Foreign central banks increase their official holdings of U.S. government securities.b. U.S. residents
One of the currencies shown in Figure 17.1 was not there in the mid-1990s. On January 1, 1999, a major new currency, the euro (€ ), was born. The European Union (EU) created the euro, and 11 of the
In 2013, foreign exchange trading was an astounding $5 trillion per day. It is difficult to comprehend how large this number is. One comparison offers some guidance. In less than four days the amount
What has happened to the exchange-rate value of the dollar in each case?a. The spot rate goes from $$1.25$/SFr to $$1.30$/SFr.b. The spot rate goes from SFr 0.80/$ to SFr 0.77/$.c. The spot rate
A British bank has acquired a large number of dollars in its dealings with its clients.How could this bank use the interbank foreign exchange market if it was unwilling to continue holding these
For each of the following, is it part of demand for yen or supply of yen in the foreign exchange market?a. A Japanese firm sells its U.S. government securities to obtain funds to buy real estate in
The spot exchange rate between the dollar and the Swiss franc is a floating, or flexible, rate. What are the effects of each of the following on this exchange rate?a. There is a large increase in
You are a foreign exchange trader and you receive the following two quotes for spot trading:• Bank A is willing to trade at $1.50 per Swiss franc.• Bank B is willing to trade at 0.50 Swiss franc
George Soros was born Dzjchdzhe Shorask (pronounced “Shorosh”) in Budapest in 1930. The son of a lawyer, he became a global investment superstar, with a net worth in 2014 estimated at about
The Eurocurrency market is a worldwide wholesale money market of enormous scope, one beyond the easy control of any government. The traditional definition of a Eurocurrency deposit is a bank deposit
“For an investment in a foreign-currency-denominated financial asset, part of the return comes from the asset itself and part from the foreign currency.” Do you agree or disagree?Explain.
Explain the nature of the exchange-rate risk for each of the following, from the perspective of the U.S. firm or person. In your answer, include whether each is a long or short position in foreign
The current spot exchange rate is $$0.50$/SFr. The current 180-day forward exchange rate is $$0.52$/SFr. You expect the spot rate to be $$0.51$/SFr in 180 days. How would you speculate using a
You have access to the following rates:Current spot exchange rate: $$0.0100$/yen Current 180-day forward exchange rate: $$0.0105$/yen 180-day U.S. interest rate (on dollar-denominated assets):
The following rates exist:Current spot exchange rate: $1.80/£Annualized interest rate on 90-day dollar-denominated bonds: 8% (2% for 90 days)Annualized interest rate on 90-day pound-denominated
Here are today’s rates:Spot exchange rate: 3.20 Polish zloty per U.S. dollar 6-month forward exchange rate: 3.24 Polish zloty per U.S. dollar.You expect the spot exchange rate in 6 months to be
The following exchange rates exist on a particular day.Spot exchange rate: U.S. $$1.400$/euro Forward exchange rate (90 days): U.S. $$1.427$/euro The following (annualized) interest rates on
Something like the purchasing power parity theory has existed throughout the modern history of international economics. The theory keeps resurfacing whenever exchange rates have become more variable
There is tremendous social importance to international comparisons of income or production levels. To judge which countries are most in need of United Nations aid, World Bank loans, and other help,
“Short-run pressures on market exchange rates result mainly from gradual changes in flows of international trade in goods and services.” Do you agree or disagree? Why?
The current rates are:Spot exchange rate: $2.00/£.Annual interest rate on 60-day U.S. dollar–denominated bonds: 5%.Annual interest rate on 60-day pound-denominated bonds: 11%.Investors currently
As a foreign exchange trader, how would you react to each of the following news items as it flashes on your computer screen?a. Mexico’s oil reserves prove to be much smaller than touted earlier.b.
For your next foreign vacation, would it be better to go to a country whose currency is overvalued relative to PPP or one whose currency is undervalued relative to PPP(other attractions being equal)?
Mexico currently has an annual domestic inflation rate of about 20 percent. Suppose that Mexico wants to stabilize the floating market exchange-rate value of its currency(dollars/peso) in a world in
In 1990, the price level for the United States was 100, the price level for Pugelovia was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced“p’noot”) was equal to $1.
Here is further information on the U.S. and Pugelovian economies.a. What is the value of k for the United States in 1990? For Pugelovia?b. Show that the change in price level from 1990 to 2013 for
Consider our example of overshooting shown in Figure 19.6, in which the domestic money supply increased by 10 percent. Assume that the path of slow adjustment of prices is that the price level rises
The price levels in Canada and Switzerland were each 110 in 1995, and the nominal spot rate was 1.5 Swiss francs per Canadian dollar in 1995. The Canadian price level rose to be 160 in 2005, the
Consider an effective exchange rate value of the euro in which the Canadian dollar gets a weight of 60 percent and the Japanese yen gets a weight of 40 percent. The nominal bilateral rates change
What is the difference between a clean float and a managed float?
For a country that is attempting to maintain a fixed exchange rate, what is the difference between a temporary disequilibrium and a fundamental disequilibrium? Contrast the implications of each type
A government has just imposed a total set of exchange controls to prevent the exchange-rate value of its currency from declining. What effects and further developments do you predict?
The Pugelovian government is attempting to peg the exchange-rate value of its currency(the pnut) at a rate of three pnuts per U.S. dollar (plus or minus 2 percent). Unfortunately, private market
The Moroccan monetary authority is using a heavily managed float to keep the dirham at U.S.$$0.12$ per dirham. Under current foreign exchange market conditions, nonofficial supply and demand would
The Danish central bank is committed to maintaining a fixed exchange rate of 7.46 Danish krone per euro, with a band of 2.25 percent on each side of this central rate.Under current conditions in the
Under the gold standard the fixed price of gold was $20.67 per ounce in the United States. The fixed price of gold was £4.2474 per ounce in Britain.a. What is the “fixed” exchange rate (dollars
What are the key features of the international currency experience in the period between the two world wars? What lessons did policymakers learn from this experience?Why are these lessons now
Why did the Bretton Woods system of fixed exchange rates collapse?
The current exchange-rate regime is sometimes described as a system of managed floating exchange rates, but with some blocs of currencies that are tied together.a. What are the two major blocs of
Why was there so much private lending to developing countries from 1974 to 1982, although there had been so little from 1930 to 1974?
Consider Figure 21.1. What is the size of each of the following? (Each answer should be a number.)a. World product without international lending.b. World product with free international lending.c.
How could each of the following cause or contribute to a financial crisis in a developing country?a. A large amount of short-term debt denominated in dollars.b. A financial crisis in another
How could each of the following reforms reduce the frequency of financial crises?a. Quick release of detailed, accurate information on the debt and official reserves of most developing countries.b.
“The global financial and economic crisis would have been resolved more quickly and with less cost if the IMF had provided rescue packages to the countries at the center of the crisis.” Do you
An African country has a policy of fixing the exchange rate value of its currency to the U.S. dollar. Banks in the country have a business model in which the banks pay competitive interest rates to
According to Figure 22.2, on which country other than Canada does the United States have the largest impact? Why do you think that this is so?Data From Figure 22.2 FIGURE 22.2 Foreign Spillovers of
An economy has a marginal propensity to save of 0.2 and a marginal propensity to import of 0.1. An increase of $1 billion in government spending now occurs. (Hint:Assume that the economy is initially
How does the intersection of the IS and LM curves relate to the concept of internal balance?
Explain the effect of each of the following on the LM curve:a. The country’s central bank decreases the money supply.b. The country’s interest rate increases.
Explain the effect of each of the following on the FE curve:a. Foreign demand for the country’s exports increases.b. The foreign interest rate increases.c. The country’s interest rate increases.
According to the Board of Governors of the Federal Reserve System, the real effective exchange rate of the U.S. dollar (relative to the rest of the world) went from 110 in late 2002 to 100 in late
Consider a small open-economy country, with s 5 0.25 and m 5 0.15. This country’s economy is otherwise standard, but it has one unusual feature. When real GDP increases, the expanded sales to
In 1992, unemployment in France was high and rising. Inflation was almost nothing. The French government seemed to respond by tightening up on money and raising interest rates.Madness? Not really,
“A country with a deficit in its overall international payments runs the risk of increasing inflation if it defends its fixed exchange rate by (unsterilized) official intervention in the foreign
What does perfect capital mobility mean for the effectiveness of monetary and fiscal policies under fixed exchange rates?
“According to the logic of the J-curve analysis, a country that revalues its currency should have an improvement in the value of its current account balance in the months immediately after the
A country’s government is committed to maintaining the fixed-exchange-rate value of its currency through central bank intervention in the foreign exchange market. The country’s government also
A country has a fixed exchange rate. Initially, the country has a surplus in its overall international payments, as well as excessive aggregate demand that is putting upward pressure on the

Showing 200 - 300 of 893