Questions and Answers of International Economics 5th

Update Table 13.2 for the most recent year.Table 13.2 Exports Automobiles Petroleum products Agricultural products Chemicals Civilian aircraft Electrical generating machinery Medical
Update Table 13.3 for the most recent year.Table 13.3 Year 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Balance on Goods
Update Table 13.4 for the most recent year.Table 13.4 Country China Canada Mexico Japan Germany United Kingdom Korea, Rep. of India France Brazil Italy Taiwan
Update Table 13.5 for the most recent year.Table 13.5 U.S. net international investment position Net international investment position excluding financial derivatives U.S. assets Assets excluding
What is the J-curve effect?
What is meant by seigniorage?
Why is a nation’s production possibility frontier the same as its consumption frontier in the absence of trade? How does the nation decide how much of each commodity to consume in the absence of
What is the relationship between opportunity costs and the production possibility frontier of a nation? How does the production possibility frontier look under constant opportunity costs? What is the
In this question we will be testing an assumption of our model of exchange rate determination. In particular, you will be showing that the PPP assumption often fails in the short run, emphasizing the
In 1899, William Miller established the Franklin Syndicate in New York. When investors joined the syndicate, they were promised a return of 10% each week. Miller encouraged members to reinvest their
Assume that Brazil and the United States have different production functions, where q is output per worker and k is capital per worker. You are told that relative to the United States, Brazil has an
To learn more about the aid debate, download some of the conflicting arguments made by two prominent figures: Jeffrey Sachs and William Easterly. See, for example, their “Foreign Aid Face-off” in
Suppose that a country has a local currency known as the dollar, its money supply is $1,500 million, and its domestic credit is equal to $1,000 million in the year 2020. The country maintains a fixed
Consider two countries, Opes and Paupria. These countries produce identical goods. Suppose that Paupria borrows some amount of funds from Opes at the world interest rate. The funds will be repaid in
Refer to the table in Question 1 of the end-of-chapter questions.The table shows that economic performance depends on which empirical measure we choose. Consider the United Kingdom and Australia.
Assume the following accounting identity for gross national disposable income:a. Starting with this definition, show that the current account is equal to domestic savings less domestic
To the right is a partial table of OECD member countries using data from the World Bank, with the countries ranked according to their GDP per capita in 2014 (these numbers are reported in current
Use the following information on a hypothetical economy, Rijkdom, for the year 2006:a. Calculate Rijkdom’s financial account balance. What has happened to Rijkdom’s foreign asset position?
The textbook discusses many different definitions of national and domestic production, income, and expenditures. Consider the following measures: GDP, GNI, and GNDI. Which do you believe is the most
In this question you will study the official macroeconomic statistics reported in your country. These can be found by searching the web for “National Accounts” and your country’s name. In the
Show how each of the following would affect the U.S. balance of payments. Include a description of the debit and credit items, and in each case identify which specific account is affected.a. A
Use the information from Question 4 to answer the following questions.a. Calculate Rijkdom’s GDP, GNI, and GNDI.b. Calculate investment for Rijkdomc. Calculate Rijkdom’s national
In 2016 the country of Ikonomia has a current account deficit of $1 billion and a nonreserve financial account surplus of $700 million. Ikonomia’s capital account is in a $150 million surplus. In
This question requires that you obtain data from the Federal Reserve Economic Database (FRED) (http://research.stlouisfed.org/fred2/). On this page, you can locate GDP data and then import/export
To answer this question, you must obtain data from the Bureau of Economic Analysis (BEA), http://www.bea.gov, on the U.S. balance of payment (BOP) tables. Go to interactive tables to obtain annual
During the mid- to late 1990s, the United States experienced an increase in investment, and the U.S. government budget went from a deficit to a budget surplus. All else being equal, how would this
Continuing from the previous question, find nominal GDP for the United States in 2015 (you can find it elsewhere on the BEA site). Use this information along with your previous calculations to
Evaluate the validity of each of the following statements. Support your answer with relevant definitions/equations.a. When there are no domestic taxes in an open economy, GNI is equal to
Consider the economy of Opulenza. In Opulenza, domestic investment of $400 million earned $15 million in capital gains during 2009. Opulenzans purchased $160 million in new foreign assets during the
This question asks you to compute valuation effects for the United States in 2018, using the same methods mentioned in the chapter. Use the bea.gov website to collect the data needed for this
Show (using credit/debit tables) how each of the following would affect the U.S. BOP. Include a description of the transaction being recorded, which specific account is affected (e.g., exports [EX],
Consider the economy of Aureus. In Aureus, domestic investment is $300 million, and its residents earned $10 million in capital gains during 2006. Residents of Aureus purchased $150 million in new
The Association of Southeast Asian Nations (ASEAN) is a political and economic association similar to the European Union (EU). Its membership includes several countries, such as Indonesia, Malaysia,
Using the production function approach (augmented model), answer the following questions. For simplicity, assume that there are two countries: a poor country (with low living standards) and a rich
Consider a country that experiences a positive, one-time shock to its output. Assume that output is initially $1,200 per year and the world real interest rate is 6%. In year 0, output increases by
Continuing from the previous question, we now consider Russia’s external wealth position.a. What is Russia’s external wealth W in year 0 and later? After a few years, the world interest rate
Go to the UN website and find out what the Millennium Development Goals are (http://www.un.org/millenniumgoals). Go to the Gleneagles summit documents and examine the promises made
In each of the following situations, describe briefly how one can make use of financial markets and transfers to help offset the negative consequences of an economic shock. a. A college
Go to the BEA website (bea.gov). Find the latest annual balance of payments data for the United States.a. Compute (1) income earned on external assets and (2) income paid on external
Suppose that an investor considers purchasing a bond that makes regular fixed annual payments (coupons, X) in each period. The initial coupon payment is made one period after the bond is issued.
Assume that all dollar units are real dollars in billions. It is year 0. Russia plans to raise $24 billion to finance domestic investment projects with a marginal product of capital (MPK) equal to
In this question assume all dollar units are real dollars in billions, so, for example, $150 means $150 billion. It is year 0. Argentina thinks it can find $150 of domestic investment projects with a
Use the production function approach to examine Bolivia and Chile. Assume that Bolivia and Chile have different production functions, q = f(k) , where q is output per worker and k is capital per
In this chapter, we saw that financial market integration is necessary for countries to smooth consumption through borrowing and lending. Consider two economies, Albania and Austria. Both are former
The production function approach suggests that countries should experience convergence in the levels of output per worker through the flow of capital across countries. One possible problem with the
Assume that a country produces an output Q of 50 every year. The world interest rate is 10%. Consumption C is 50 every year. There is an unexpected drop in output in year 0, so output falls to 28 and
Assume that a country produces an output Q of 50 every year. The world interest rate is 10%. The country currently plans a consumption level C equal to 50 every year. There is an unexpected war in
This question will compare the policies of the federal government and the Federal Reserve and their likely effects on interest rates, exchange rates, output, and the trade balance during the mid- to
In this chapter we discussed the weak link between the real exchange rate and the trade balance. We looked at a time series diagram showing these two variables for the United States, but what about
This question uses a numerical example to understand the connections between the goods, money, and foreign exchange (FX) markets.a. Find the MPC, MPCf, MPCH and MPS for this economy.b. Using the
In 2001, President George W. Bush and Federal Reserve Chairman Alan Greenspan were both concerned about a sluggish U.S. economy. They also were concerned about the large U.S. current account deficit.
Suppose that American consumers become less optimistic about economic conditions and reduce their total consumption (for a given level of disposable income).a. How will this affect consumption,
Suppose that American firms become more pessimistic and decide to reduce investment expenditure today in new factories and office space. a. How will this increase in investment affect
For each of the following situations, use the IS‒LM‒FX model to illustrate the effects of the shock. For each case, state the effect of the shock (increase, decrease, no change, or ambiguous) on
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no
Suppose the Japanese government is considering two policies. One policy would involve increasing government spending, and the other would involve an expansion in the money supply. How would each of
How would a decrease in the money supply of Paraguay (currency unit: the guaraní) affect its own output and its exchange rate with Brazil (currency unit: the real)? Do you think this policy in
For each of the following situations, use the IS‒LM‒FX model to illustrate the effects of the shock. For each case, state the effect of the shock (increase, decrease, no change, or ambiguous) on
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. For each case, state the effect of the shock on the following variables
Repeat the previous question, assuming that the government responds to maintain a fixed exchange rate. In which case or cases will the government response be the same as in the previous question?Data
During the 1990s, American depositors dramatically increased the share of their funds in money market mutual fund accounts. Although these accounts have restrictions (such as limited access to funds
For each of the following scenarios, assume that the economy experiences an exogenous decrease in investment demand. For each case, illustrate the IS‒LM‒FX diagram and state the effect of the
Continuing the last question, solve for the IS curve: obtain an expression for Y in terms of i, G, and T (eliminate E).Data from Problem 8: This question explores IS and FX equilibria in a
In the years leading up to the Great Depression, a key objective, or rule, of the federal government was to balance the government budget.a. Suppose that tax revenue collected by the government
Determine whether each of the following statements regarding the limitations of stabilization policy for the United States is true or false. Include a diagram or explanation to support your
Examine the empirical evidence on the benefits and costs of currency pegs. First, identify the potential costs and benefits, and then evaluate each based on the empirical analysis presented in the
Visit the International Monetary Fund’s website (http://www.imf.org) and locate the latest classification of exchange rate regimes in all countries around the world. How many countries are fixing,
The Bulgarian lev is currently pegged to the euro. Using IS‒LM diagrams for Home (Bulgarian lev) and Foreign (Eurozone), illustrate how each of the following scenarios affects the Bulgarian lev.
The Chinese government manages the value of the Chinese yuan relative to the U.S. dollar. Between 1995 and 2005, the yuan was strictly pegged to the dollar at a rate of roughly 8.28 yuan per dollar
The Danish krone is currently pegged to the euro. Using the IS–LM–FX model for Home (Denmark) and Foreign (Eurozone), illustrate how each of the following scenarios affects Denmark:a. The
During the mid-1990s, Mexico maintained an exchange rate peg against the U.S. dollar. When President Zedillo took office in December 1994, he faced several challenges. The assassination of a
Consider two countries that are currently pegged to the euro: Bulgaria and Comoros. Bulgaria is a member of the EU, allowing it to trade freely with other EU countries. Exports to the Eurozone
Consider a noncenter home country that is part of a fixed exchange rate regime. The home country currently has output higher than its desired level. Concerned about inflationary pressures, central
During the 1980s, several Latin American countries had currencies pegged to the U.S. dollar. Consider three such countries: Belize, Bolivia, and Mexico. A larger share of Mexico’s exports was/is
Several countries that have experienced political and economic stability adopt a fixed exchange rate regime to draw on the potential benefits, such as fiscal discipline, seigniorage, and expected
In the context of the trilemma, compare and contrast the dissolution of the gold standard during the 1920s and 1930s to the collapse of the Bretton Woods system during the 1960s and early 1970s. In
Home’s currency, the peso, currently trades at an exchange rate of 1 peso per dollar. Home has external assets of $320 billion, 100% of which are denominated in dollars. It has external liabilities
The International Monetary Fund (IMF) is often viewed as an international lender of last resort. When countries seek out loans from the IMF to alleviate banking and economic crises, the IMF often
Find the photo of the $20 gold coin on page 308 (700) in this chapter and refer to the specifications in the adjoining caption. Calculate the U.S. dollar price of 1 ounce of gold under the pre-1913
Consider how fixed exchange rate regimes differ in advanced economies versus emerging markets/developing countries.a. How do exchange rate crises differ across these groups?b. Among which groups are
Identify three countries with fixed exchange rates. Now use the Internet to search for and visit the websites of each of these countries’ central banks and download the latest balance sheet
Consider the central bank balance sheet for the country of Patria. Patria currently has 2,500 million lira in its money supply, 1,800 million of which is backed by domestic government bonds. Assume
Suppose a country has $2,000 million in money supply and $1,200 million in reserves.a. Illustrate the central bank balance sheet diagram. Calculate the backing ratio.b. Because of a recent banking
Using the central bank balance sheet diagrams in Figure, evaluate how each of the following shocks affects the country’s ability to defend a fixed exchange rate.a. The foreign interest rate
Compare and contrast the following scenarios in terms of their costs and benefits.a. The central bank uses sterilization bonds to obtain reserves.b. The central bank follows a strict currency board
Using a first-generation model, we’ve seen that fiscal policy plays a role in the central bank’s ability to maintain the exchange rate peg. Using a central bank balance sheet diagram, illustrate
In the text, we examined how government deficits affect the country’s ability to defend a peg using a first-generation model. Suppose an economy has $5,760 billion in money supply and $4,000
Consider the previous question. In this case, we assume investors are forward-looking and hear news that the government deficit will grow at 20% each year.a. How will investors respond to the
The textbook examines what happens when governments run persistent budget deficits in a first-generation model. Suppose that a country begins running large budget surpluses. In this case, will the
Consider a second-generation model of crises. Assume that the benefit of maintaining an exchange rate peg is equal to 4% (measured in output gap terms). Examine each of the following cases, assuming
During the East Asian currency crisis, some countries opted to float their currencies relative to the U.S. dollar, whereas others did not. Consider two countries: South Korea and Malaysia. South
Throughout the chapter, there are applications citing the dramatic accumulation of reserves among selected emerging markets and developing countries.a. What are the causes of this reserve
Describe how labor market mobility affects the cost–benefit OCA analysis for joining a currency union. How does labor market integration in the EU compare with that of the United States? Explain
Do some research on the Internet to construct an updated version of the map. You can find membership information on the websites of the European Union (europa.eu) and the European Central Bank
Consider three countries that are considering joining a currency union called the CU: Country A, Country B, and Country C. Country A and Country B have similar trade volumes with other countries in
In a symmetry-integration diagram, illustrate how each of the following scenarios affects the position of the OCA line and the likelihood that a given country (Country A) will join the currency
After German reunification and the disintegration of communist rule in Eastern Europe, most countries in that region sought to join the European Union (EU), including the Economic and Monetary Union
Consider the data presented in panels (a) and (b) from the text in the context of a symmetry-integration diagram. For this question, you may assume that the FIX and OCA lines are straight (linear)
Consider the claim that the OCA criteria are self-fulfilling. In what ways might this benefit a country that joins the currency union even if it doesn’t satisfy the OCA criteria before joining? In
Looking at the evidence, is the EU an optimum currency area? Reviewing a broad history of Europe, do you believe that the impetus for the formation of the EU and Eurozone was economic or political?

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