F2A3 whole

International Economics

Instructions:

1. Assignment must be typed and submitted in Microsoft Word format.

2. Format the assignment with 1.5 line spacing and size 12 point Arial font.

3. You must clearly label the answer to each question.

4. Word count: 1500-2000 words (total), not including references, tables and figures.

The suggested word limit for each question is provided in the assignment.

5. You should be familiar with materials covered until week 7 to answer this assignment. You may also use library resources and other online articles to support your answers.

Week 1: Introduction to the world economy

In this session we discussed:

1. Trade, capital flows and migration

2. Trade-to-GDP ratio and its significance  

3. First wave of globalization and what factors are different today

4. Trade and Economic growth

5. Important International Institutions since World War II

Week 2: Theory of comparative advantage

In this session we discussed:

1. Absolute advantage

2. Gains from Trade

3. Comparative advantage

4. Comparative vs Competitive advantage

5. International Trade and Economic Restructuring

Week 3: Factor endowments and trade

In this session we discussed:

1. The Heckscher-Ohlin Trade Model

2. Trade and Income Distribution

3. The Product Cycle Model

4. Intra-firm trade and OLI theory

5. International migration

6. International Trade, Wages and Jobs

Week 4: Modern trade theories

In this session we discussed:

1. Intra-industry Trade

2. Economies of Scale – Internal vs. External

3. Transportation costs and Trade

4. Trade and External economies of Scale

5. Industrial Policy

Week 5: Trade barriers: Tariffs and quotas

In this session we discussed:

1. Consumer and Producer surplus

2. Impact of Tariffs, especially on Resource Allocation and Income Distribution

3. Tariffs imposed by a large country

4. Rates of Protection

5. Impact of Quotas

6. Other forms of Protection

Week 6: Trade policy

In this session we discussed:

1.Trends in tariff rates - Across sectors and over time

2.Costs of protectionism

3.Common reasons behind protectionist policies such as revenue generation, job protection, infant-industry protection among others

4.Politics of protection in the U.S.

Week 7: Labour and environmental standards

In this session we discussed:

1. Income, Development Indicators and Standards

2. Trade and labour standards

3. Child labour

4. Trade and Environment

5. Alternatives to Trade measures

6. You must clearly acknowledge all sources using Harvard referencing system including the textbook. The textbook for this unit called International Economics: Global Edition by James Gerber, 7th edition, published in 2017 by Pearson.

Use reliable resources such as journals, journals peer-reviewed, government sites, textbooks and reliable websites or so.

Rubrics:

Highly developed skills in expression and presentation of ideas. Fluent writing style. No major grammatical and spelling errors. All references, including recent literature, cited and used accurately.

Excellent use of knowledge gained and awareness of deeper and more subtle aspects of economic issues and theories. There is clear evidence of researched/read more widely beyond the core materials.

Provides well-argued and articulated statements with supporting evidence. Evidence of originality and independent thought. Has highly developed analytical skills & consistently demonstrates high levels of critical analysis. Demonstrates ability to reflect on conclusions and their implications.

This Assignment consists of 3 questions. Attempt all of them.

Question 1 (10 marks, 600 words)

Utopia and Toughtimes are two neighboring countries. Both countries have a savings rate of 20% and follow a fixed exchange rate regime with their currencies pegged to the US dollar. The US is also the largest export market and trading partner for these two nations. The tables below summarize the economic performance of Utopia and Toughtimes over the last five years (2016-2020). Over the same time period the real GNP of US has grown at an average rate of 2.5% and its inflation rate has been 3%.

	Utopia
	2016	2017	2018	2019	2020
Current Account balance (billion dollars)	-35	-38	-44	-48	-55
GNP (billion dollars)	1000	1020	1035.3	1050.83	1071.85
Budget deficit (billion dollars)	20	37	45	94	115
Inflation rate (%)	4	6	7	7	8
Unemployment rate (%)	3	3.5	5	6	6.5

	Toughtimes
	2016	2017	2018	2019	2020
Current Account balance (billion dollars)	-37	-37	-38	-39	-37
GNP (billion dollars)	800	816	840.48	865.69	891.67
Budget deficit (billion dollars)	20	15	12	8	4
Inflation rate (%)	4	3.5	3	2.8	2.5
Unemployment rate (%)	6	5	5	4.5	4

Budget deficit is the difference between government expenditure and tax revenue (G-T). The GNP, Current Account balance and the budget deficit are adjusted for inflation (i.e., they are measured in constant US dollars).

(a) Write a brief report evaluating the economic performance of Utopia and Toughtimes from 2016-2020. The conclusion of your report should address the following question:

“Is there any danger of either of these countries experiencing an economic crisis in near future? Why or Why not?”

(10 marks, 600 words)

Question 2 (10 marks, 600 words)

The COVID19 pandemic has disrupted the entire world economy with most countries going into a recession.

(a) With the help of Aggregate Demand - Aggregate Supply model, explain the likely impact of the pandemic on an economy.

(2 marks, 100 words)

(b) Discuss the type of monetary and/or fiscal policy that would be required to get the economy back to full employment level of output and their resulting effect on the current account balance:

1. under a floating exchange rate system.

1. under a fixed exchange rate system.

(8 marks, 500 words)

Question 3 (15 marks, 800 words)

Ever since Australia and New Zealand signed Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), many economists and policymakers have argued for the two countries to adopt a common currency say an ANZAC dollar. They argue that Australia and New Zealand satisfy the requirements for adopting a single currency and that both countries would benefit hugely by the removal of uncertainties associated with the fluctuations of their currencies against each other.

For more details on ANZCERTA, refer to the following website:

https://www.dfat.gov.au/trade/agreements/in-force/anzcerta/Pages/anzcerta-its-genesis-and-the-present

Write a brief report evaluating the pros and cons of adopting a single currency for Australia and New Zealand. Your report should explicitly address the following questions:

(a) Do Australia and New Zealand satisfy the necessary conditions required for the adoption of a common currency?

(8 marks, 500 words)

(b) What are the likely gains from adopting a single currency for Australia and New Zealand? Do the gains outweigh the disadvantages for both countries that are likely to arise by giving up the right to conduct their monetary policy independently?

(7 marks, 300 words)

The following figures and tables show the correlation between Australia and New Zealand with respect to some important macroeconomic variables from 2000-2020. You may use them in your report to support your arguments. You can also use any other relevant data and evidence from other sources. Please cite all references.

Table 1

Variable name	Correlation coefficient
GDP growth rate	0.74
Inflation	0.68
Cash rate	0.91
Unemployment rate	0.44
Exchange rate (USD per AUD or NZD)	0.90
CA-GDP ratio	0.45

END OF WRITTEN ASSIGNMENT

0.20000.30000.40000.50000.60000.70000.80000.90001.00001.10001.2000Mar-2000Dec-2002Sep-2005Jun-2008Feb-2011Nov-2013Aug-2016May-2019Feb-2022Exchange rate (against US dollar)USD per AUDUSD per NZD

-8.00-6.00-4.00-2.000.002.004.00Mar 2000Dec 2002Sep 2005Jun 2008Feb 2011Nov 2013Aug 2016May 2019Current Account as a percentage of GDPCA-GDP ratio (AUS)CA-GDP ratio (NZ)

-12-10-8-6-4-202468Mar 2000Dec 2002Sep 2005Jun 2008Feb 2011Nov 2013Aug 2016May 2019Feb 2022GDP growth rates GDP growth rate (AUS)GDP growth rate (NZ)

-101234567Mar 2000Dec 2002Sep 2005Jun 2008Feb 2011Nov 2013Aug 2016May 2019Feb 2022Inflation rateInflation (AUS)Inflation (NZ)

0.001.002.003.004.005.006.007.008.009.00Mar-2000Dec-2002Sep-2005Jun-2008Feb-2011Nov-2013Aug-2016May-2019Feb-2022Cash RateCash rate (RBA)Cash rate (RBNZ)

3.03.54.04.55.05.56.06.57.07.58.0Mar-2000Dec-2002Sep-2005Jun-2008Feb-2011Nov-2013Aug-2016May-2019Feb-2022Unemployment RatesUnemployment rate (AUS)Unemployment rate (NZ)