Badlands is a small open market economy, it has a major trade agreement with and mainly exports (85%) to its densely populated eastern neighbor: Blue-Inkas. Blue-Inkas exports to Vostistan (a technologically advanced major economic power) constitute 70% of its total exports and it also exports 8% to Galaxasica (about 7.5 billion Galaxasica xasica per year). There is a severe economic contraction and political crisis in Vostistan mostly driven by nationalism from “Made-in-Vostistan” political party. Badlands just announced that they have discovered vast oil reserves offshore near its northeastern province. The reserves will generate 850 million bads per year. The household debt-to-income ratio in Blue-Inkas is 200%, the national debt has risen by 25% within the last eight quarters, an estimate of 0.38 billion binkas per quarter. The major political party in Badlands has instituted a minimum wage policy that will go into effect in under one-month. Vostistan is currently
conducting a military expedition in Badland’s Northern neighbor: 

Galaxasica. The expedition will cost about two billion Vostistan Vostoks per year. There are international imposed sanctions targetted at Galaxasica’s main industries:

The microchips and car tires manufacturers. Vostistan is the major importer of tires and microchips. Blue-Inkas is the major research centre for software engineering, microechip design and has the highest concentration of software engineers in the world. You have been appointed by an international liquidity provision agency to recommend an economic policy for the four nation states ( i.e “White Paper”).The policy must take into account exchange rate and monetary policy with the goal of stabilizing each country’s financial markets and it will be the basis for the creation of an “International Agreement” on “Financial Markets Stability and Economic Development”. What policy tools would you recommend and why? What if scientists have predicted with certainty that a global pandemic (virus) will occur within the next three months and that there will be waves over the next 5-years as the virus mutates and scientists work on finding an effective vaccine, how does this prediction affect your proposal(s)? 

Hint: 

Think about the intersection of Monetary Policy, Central Banking, Financial Institutions, International Finance, Forex Markets, Financial crisis.

Answer rating: 100% (QA)

1 To stabilize the financial markets in each of the four nations I would recommend a combination of monetary and exchange rate policies 2 For Badlands ... View the full answer