10 Economics Questions

Chapter 14

Q1. Provide a few reasons for engaging in international trade (the case for trade) in a new economy in this new century.

Q2. What are the theories of comparative advantage and absolute advantage? Give examples.

Q3. Distinguish between the gold standard and the Bretton Woods system in determining the currency exchange rate.

Q4. List the pros and cons of the Bretton Woods system. Why did it collapse in the 1970s?

Q5. Distinguish between the fixed exchange rate system (the Bretton Woods system) and the floating exchange rate system. Provide examples and diagrams

Chapter 15

Q1. Explain why US-based exporting companies prefer a weak US$ in currency markets.

Q2. Suppose a Chinese company buys a one-year TB with a face value of $10,000 today for $9,500. If the value of the dollar declined from 8 renminbi (yuan) to 7 renminbi during the year, what rate of return will the Chinese company earn on its investment?

Q3. Why does the balance of payment always balance even when the balance of trade may not be in balance? How has the US government paid for its chronic trade deficit of over $400 billion per year for so many years? Does this trade deficit matter in the long run?

Q4. How can monetary policy actions reduce the trade deficit? How might the increase in the budget deficit from expansionary fiscal policy increase the trade deficit?

Q5. In a state of economic boom, why does the Fed take a neutral position on the rising trend of the US$ exchange rate? Explain. On the other hand, if the exchange rate starts to decline in the wake of the increasing tariffs on Chinese imports to the United States imposed by the Trump administration, what policy action should the Fed take