Introduction To International Political Economy 3rd Edition David N. Balaam, Michael Veseth - Solutions

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What are the margins of fluctuation? What role do they play?
How does EMS-2 differ from EMS-1?
What is the difference between the EMS and the ERM?
What differences do you see between the Gold Exchange Standard and a monetary union?
During the inter-war era, misalignments led to competitive devaluations, which then prompted a tariff war. Explain why.
In the aftermath of the financial crisis, the exchange rates of Poland, Sweden and the UK have depreciated sharply (by some 20 per cent or more) relative to the euro. These countries are members of the Single Market but not of the monetary union. Discuss the likely effects on these countries and on
Argue why it may be preferable to adopt a fixed exchange rate regime. Now make the argument in defence of a floating exchange rate.
The Eurozone crisis has resulted in very different interest rates being applied in different countries, as exemplified by the case in Greece (Figure 13.9). Explain how this has reduced the ECB's ability to conduct monetary policy.
It is often believed that a peg encourages residents (households, firms, banks) to borrow in a foreign currency. Then, if the exchange rate is devalued, many residents face the risk of bankruptcy. Explain and comment.
The real, not the nominal, exchange rate is what matters for the real side of the economy. Why don't central banks attempt to control the real rather the nominal exchange rate?
Does PPP imply that the inflation rate must be the same in every country under fixed exchange rate arrangements?
Use the IS-MP-IRP framework to examine the effects when the markets expect the exchange rate to appreciate, so that dep, which was zero, becomes negative. Study the situation under both exchange rate regimes.
A standard speculation strategy consists of borrowing in the home country, investing abroad and selling the proceeds from the foreign investment to pay back the original loan. Determine when this strategy is profitable. Explain why it helps to re-establish the interest rate parity condition.
Drawing on your results in the previous question, characterize the differences between the fixed and flexible exchange rate regimes: which policies work and which do not?
Using the IS-MP-IRP framework, examine the case when fiscal and monetary policies are jointly made expansionary.
The reaction of a central bank to GDP fluctuations is captured by the slope of the MP schedule. Interpret the meaning of a steeper schedule. Examine its effects under both fixed and flexible exchange regimes.
Consider the case where i> + dep. Explain the capital flows triggered by this configuration. In which direction are the capital flows likely to push i, i", the current exchange rate E, for a given expected future exchange rate?
Return to Table 13.2 and compute for each country the change in exchange rate that we would have observed if PPP were to be satisfied.
If the nominal exchange rate appreciates by less than the excess of foreign over domestic inflation, is the real exchange rate appreciating or depreciating?
Explain the term 'hub-and-spoke bilateralism' as applied to the EU's neighbours in Europe and around the Mediterranean.
Why did the EU extend unilateral tariff preferences to former French and Belgian colonies, and why did it extend these to former British colonies in the mid-1970s?
What is the most protected good in the EU and what is the least protected good?
What does the EU buy from and sell to the five continents: Europe, Africa, North America, South America and Asia?
What is the role of the Member States and the Commission in relation to external trade policy? Be sure to distinguish between trade in goods and more 'modern' trade issues such as trade in services, trade in intellectual property rights and foreign direct investment.
Using a diagram similar to Figure 11.2, show what the welfare effects would be following a switch from normal competition to perfect collusion. Be sure to address the change in consumer surplus and pure profits.
Look up a recent anti-trust case (Article 81) on the Commission's website (http://ec.europa.eu/ competition/antitrust/cases/index.html) and explain the economic and legal reasoning behind the Commission's decision, using the diagrams in this chapter.
Look up a recent state aid case on the Commission's website (http://ec.europa.eu/competition/ state_aid/register/) and explain the economic and legal reasoning behind the Commission's decision, using the diagrams in this chapter.
Suppose that liberalization occurs as in Figure 11.1 and the result is a pro-competitive effect, but instead of merging or restructuring, all firms are bought by their national governments to allow the firms to continue operating. What will be the impact of this on prices and government revenues?
The European Commission has proposed putting an upper limit on the total direct payment per farm of approximately 300,000. What would be the impact of this on prices, output and the distribution of farm incomes?
The text mentions that since direct payments are tied to the land, it is the land price that soaks up most of the subsidy. Use a classic supply and demand diagram to demonstrate this result. (Hint: This is a standard exercise in what is known as the 'incidence of a tax' since a subsidy is just a
Before the UK adopted the CAP, it supported its farmers with a system of 'deficiency payments, which is the agro-jargon for production subsidies. Using a diagram like Figure 9.2, analyse this policy assuming that the import of food was duty free, but the government directly paid farmers the
Some developing nations accuse the EU of using technical standards for food (pesticide content, etc.) as a barrier to trade. Suppose they are correct. Use diagrams to show how you would analyse the impact of such protection on EU and RoW welfare.
In 2003, the world wheat price was above the CAP's target price so the price floor has become a price ceiling. (i) Using a diagram like Figure 9.2, show how the EU could implement the price ceiling with an export tax. (ii) What are the effects of this in the EU and in the rest of the world (prices,
'Social magnets' are countries that offer generous unemployment and other welfare benefits. This is one key reason why unemployment benefits are not served to migrants for more than three months. Explain why, otherwise, this could be a serious problem in Europe in view of the freedom of movement of
'Hard line' trade unions push for higher wages while 'cooperating' trade unions push for more jobs. What do these differences imply for the working of the labour market and for output? (Hint: Capture the distinction in terms of the shape of the Scoll curve.)
Looking at Figure 8.2, there seems to be a weak inverse relationship between the unemployment rate and the employment-to-population ratio. Why? And why is this relationship not tighter?
Capital accumulation and technological innovations raise the marginal productivity of capital. Graphically, in Figure 8.12 the MPL curve shifts up. Starting from point Q, consider two cases: (a) wages rise but employment remains unchanged at L; (b) employment increases but wages rise. Compare the
Same question as (4) but looking at the effects of migration in Figure 8.13.
Figure 8.8 shows the effect of trade integration in the presence of collective bargaining. What would things look like in the absence of collective bargaining but when wages are downward-rigid?
Figure 8.14 depicts the evolution of the unemployment rate in France and in the UK, distinguishing between a trend and deviations from the trend. In the UK, the rate tends to deviate more from its trend than in France. Can you explain this pattern? 2 3 4 5 a 19 1971 1975 1979 1983 1987 1991- 1995
Using Figure 8.4, explain what happens to voluntary and involuntary unemployment as workers individually ask for higher wages for the same amount of work. Answer the same question using Figure 8.5, assuming that there is no change in the collective supply of labour.
Explain what happens to a firm's profits as it moves in Figure 8.3 from point A to point B.
Discuss and analyse the post-1989 growth experience of one central European nation. Be sure to use the concepts introduced in this chapter.
Put the attitude towards capital market integration of the founders of the EU into historical perspective. Focus on the period after 1914.
In most analyses, growth in per-capita GDP is taken to be a good thing. Critique GDP as a measure of economic welfare. Be sure to consider issues of income distribution and leisure time.
Just after the Second World War, the economies of the Six experienced massive destruction of physical capital. Although many workers also died, the war tended to do more damage to the capital stocks than it did to the labour force. Use a diagram to illustrate how this may help explain the
Use a diagram to analyse the medium-term growth effects of the following situation. Brexit damages the efficiency of the UK economy in a one-off way. What would this do to the induced capital formation in Britain? What would this imply for British medium-run growth in the years following Brexit?
It is often said that the prospect of EU membership made central European nations a better, safer place to invest. Using the Solow diagram, show how this would affect medium-term growth in these nations. What sort of 'footprints' would this leave in the data?
When the German reunification took place, Germany's labour force rose much more than its capital stock (since much of East Germany's capital stock was useless in the market economy). Use a diagram to analyse what the medium-term growth effects should have been. Go on the internet to find out what
Describe the historical role that the scale economies argument played in the economic case for deeper European integration. Start with the Spaak Report and the Cockfield Report, Completing the Internal Market, White Paper, COM(85) 310 final.
Has the strategy of defragmenting Europe's markets worked in the sense of promoting bigger, more efficient firms facing more effective competition? Choose an industry, for example telecoms, chemicals, pharmaceuticals or autos, and compare the evolution of the EU industry with that of the USA or
Consider a sequence of EU 'enlargements' where each enlargement involves a no-trade-to-free- trade addition of one more member. Specifically, suppose there are three initially identical economies, each of which looks like the one described in Section 6.2. Initially, all nations are closed to trade.
Using your findings from Question 2, you should be able to consider the impact of a no-trade-to- free-trade integration between a large and a small nation, where size is defined by the position of the demand curve (the demand curve in the large nation will be further out than the demand curve for
Use a three-panel diagram, like Figure 6.3, to show how the number of firms, mark-up and firm size would change in a closed economy if the demand for the particular good rose, i.e. the demand curve shifted out.
Suppose that liberalization occurs as in Section 6.3 and the result is a pro-competitive effect, but instead of merging or restructuring, all firms are bought by their national governments to allow the firms to continue operating. What will be the impact of this on prices and government revenues?
Suppose Home has no trade barriers, except anti-dumping meas Th .the f ?rm of price undertak~gs, i.e. instead of Horne imposing at=~-on ese anti-dumping ~neasures take req,mres Partner and Ro W frrms to charge a high price for th . Ro W and Partner imports Home and welfare effects of imposing this
(Sapir'. 1~92) Con~id~r a situat~on in which Home and Partner have formed a customs union but have not eliminated fnct10nal barriers between them. Specifically assume th t- 11 H P d R W b · f · · ' a a trade flows among ome, artner an o are su ~ect to nct10nal trade barriers eq_ual to T' and . .
(Hub-and-spoke bilateralism) Using RTA diagrams, show what the price, q_uantity and welfare effects would be of the unilateral imposition of tariffs by one nation, say the USA, and retaliation against that nation by all other nations. The would be hub-and-spoke protectionism (hub-and-spoke means
(Growth effects and RoW impact) Suppose that signing an FTA between Home and Partner pr~duces a growth effect that raises their income level and thus shifts their MD curves upwards. Use a diagram like Figure 5.4 to show how big the upward shift would have to be to ensure that Ro W did not lose from
(Large partner rule of thumb) Redo the orma 1011 that most of Home's imports . f H d Partner in the sense initially a much smaller tradmg partner o ome an h 11 three nations impose the are from Partner and most of Partner's imports are fro~ Home w en ~ C in Figure 5.8) is smaller initial MFN
(Cooper-Massell, 1965, extended) We can think of a preferential unilateral liberalization in the following roundabout manner. Home lowers its tariffs to zero on an MFN basis, but then raises it back to T on imports only from RoW. Now suppose that Home faces a flat MS curve for imports from both
(Kemp-Wan theorem, 1976) Starting from a situation like that shown in Figure 5.1, where the three nations are symmetric in everything, including the initial MFN tariff 7, suppose that Home and Partner form a customs union and lower their common tariff against Row to the point where the new,
Using a diagram like Figure 4. 7, show that the welfare effects of a q_uota that restricts imports to M' are exactly the same as a tariff eq_ual to T; assume that each q_uota licence (i.e. the right to import one unit) is sold by the government to the highest bidder.
Using a diagram like Figure 4.5, show the impact on q,uantities, prices and welfare when Home has no tariff but Foreign imposes an export q_uota with a tariff-eq_uivalent of T.
Using a diagram like Figure 4. 7, show the impact on q_uantities, prices and welfare when Home has no tariff but Foreign charges an export tax eq_ual to T.
Using a diagram like Figure 4.5, show that an import tariff eq_ual to Thas exactly the same impact on prices, q_uantities and welfare as a domestic consumption tax eq_ual to T and a domestic production subsidy eq_ual to T. (Hint: A production subsidy lowers the effective marginal cost of domestic
Using the results from the previ . on Foreign exports and Forei ous e_xe:cise,. consider the impact of Home imposing a tariff MS d MD f gn retahatmg with a tariff on Home's exports. Assume that the~; t' t:ve~ or both goods (Home exports to Foreign and Foreign exports to Home)are i en ica · artmg
Using a diagram like Figure 4.9, show that a . gain - starting from free trade _ f . . country facing an upward-sloping MS curve can small tariff, the rectangle gain r~m. unposmg a sufficiently small tariff. (Hint: Starting from a but the rectangle gets bigger ; a~ 1 triangle losses both increase
One way to think about the slope of the MS curve is in terms of the 'size' of the home nation. The idea is that the demand from a very small nation has a very small impact on the world price. For example, Switzerland could probably increase its oil imports by 10 per cent without?
The exit of Britain from the EU is likely to disrupt supply chains for things like Airbus planes and automobiles like the Mini. Go online to find some information about the supply chains of Airbus and use the Supply-Chain diagram to discuss the impact on the cost of Airbus planes.
Using a diagram like Figure 4.9, show the full Foreign welfare effects of imposing a Home tariff equal to T, i.e. show the impact on Foreign producers and Foreign consumers separately.
Using the definition of legitimacy proposed in the text (equal power per person), try to determine whether the US Congress is 'legitimate'. Note that the US Congress has two houses: the Senate and the House of Representatives. In the Senate, each of the 50 states has two Senators, while the number
The formal power measure discussed in the chapter assumes that each voter has an equal probability of saying 'yes' or 'no' on a random issue, and that the votes of the various voters are uncorrelated. That is, the likelihood that voter A says 'yes' on a particular issue is unrelated to whether
Using the actual Council votes in the Lisbon Treaty, list five blocking coalitions that you might think of as 'likely'.
In many European nations, the trend for the past couple of decades has been to decentralize decision making from the national level to the provincial or regional level. How could you explain this trend in terms of the theory of fiscal federalism?
List the main trade-offs stressed by the theory of fiscal federalism. Discuss how the tension between negative spillovers and diversity can explain the fact that the EU has adopted only very limited harmonization of social policies.
Make a table recording th · 1 . . . . . .T e maJor c 1anges to each of the Big-5 mstitut10ns lillplied by the Lisbon reaty.
E~~lam why it is important for the coherence of the Single Market that the European Co~'s ru mgs cannot be appealed in Member States' courts.
List the mam sources of EU rev d th · · · · · d 1 d . . enue an e mam spending pnonties. Explain how each of these has eve ~pe over tune. (Hmt: you can find some very nice charts and data sources on this internet)
E_xplain wl~y the authority of the EU Court was such an issue in the Brexit negotiations.
~5evelopb an easy way of remembering the names of all EU28 members (e.g., when there were only o memd etrhrs, one way to remember was that there are four big ones, four small ones four poor nes an ee new ones). '
Draw a diagram that shows ho th p gramme, the EU s space programme.Lisbon Treaty.
Go online to find details on t~e EU I~ ~nc udes t~1e role of the national Parliaments.fishery policies, the EU's ERASMUS urJe~ and fmd wha~ share of the budget is spent on the EU's
Draw a diagram like Figure 2. 5 wh· h . 1
Write out a timeline for the European migration crisis.
Write out a tin1eline for the main events in Brexit starting with the June 2016 vote and running all the way up to the present.
Define populism and explain how Euroscepticism cliff ers from Europessimism.
Make a table showing the elates of all changes in EU and EFTA membership.
Explain when and by which means the organization that is known as the European Union has changed names since its inception in 1958.
Explain how Cold Wa~ s u:-seq,uence of events from 1958 to 1992 that lends support to this theory'.po 1cs accelerated European integr t' . others, such as geographic expansion of the EU.
:;::::~r~:0 in::~:~~n ex~erts subscri~e to the so-called bicycle theory of integration, which that is breaking f own Li tgration must contmually move forward to prevent it from 'falling over'
Wha~ were the main changes in the Lisbon Treaty aimed at adapting the EU to the increased num er of members that came with the eastern enlargement?
Make~ liSt ?fall the_EU ~reaties (with dates) and provide a 10-words-or-fewer explanation of each treaty s maJor contnbut10n to European integration.
?raw ~ diagram like Figure 1.4 that shows the current state of trade a rrangements in Europe mcludmg all European nations west of the Urals. '
Draw a _diagram (o~ diagrams) that graphically shows the major steps in European economic mtegrat10n, along ':1th date~ and the names of the cow1tries involved. Be sure to discuss explicitly the removal of various barriers to the movement of goods, labour and capital. ·
This chapter ends with four scenarios for the future. Compare and contrast these different visions of the future. Which do you think is the most likely?Explain. Why does it matter which of these scenarios (or other set of conditions)actually occurs? How does what happens in the IPE affect you?
Is globalization a positive or a negative force in the world today? Explain, citing both theoretical arguments and personal observations.
Briefly outline the three fundamental tensions states are likely to encounter in the near future. Which do you feel is most important? Explain. Discuss the connections between all three of these tensions.
Review the basic elements and features of the IPE approach: the three main theoretical perspectives, four structures, and types of power. Which ones do you feel most comfortable and most uncomfortable with? Discuss the connection between how comfortable you are and your own values related to IPE.
After reading the entire chapter, discuss the assertion by Lester Brown that we lack the political will to solve environmental problems. Do you agree or disagree? Explain. What other things would you say we lack or need in order to solve these problems?

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Introduction To International Political Economy 3rd Edition David N. Balaam, Michael Veseth - Solutions

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