Urgent International Trade Economics Assignment $$$ Due Friday

Economics 218, Topics in international economics

Text: Robert J. Carbaugh, International Economics, 14th Edition (South-Western).

Test 4 review questions

Part II: Part II: Graphical expositions / problems

1.

a. Graphically show and explain the J-curve (4)

b. Graphically show and explain currency overshooting (4)

c. What is the commonality between the two concepts above? (2)

2.

a. What is the key insight of the absorption approach and what currency adjustment is needed to rectify identified imbalances? (4)

b. Explain the following three cases identifying likely magnitudes and second round impacts if any:

i. Horizontal SRAS (2)

ii. Vertical SRAS (2)

iii. Upward sloping SRAS (2)

3. Graphically show and explain why monetary policy is viewed as ineffective under a fixed exchange rate regime.

4. Graphically show and explain why fiscal policy is more effective under a fixed exchange rate regime.

5. Graphically show and explain why monetary policy is more effective under a flexible exchange rate regime.

6. Graphically show and explain how the US government might use exchange rate policy to address a recession.

7. Graphically show and explain a case in which there is policy consistency in an open economy macroeconomic model.

8. Graphically show and explain a case in which there is policy conflict in an open economy macroeconomic model.

9. Graphically show and explain the macroeconomic impact capital inflows might have on a L/MIC economy.

10. a. Graphically show and explain how currency control can be protectionist.

b. Graphically show and explain how currency overvaluation might encourage corruption and capital flight.

Part III: Narratives / problems

1. Explain the following issues that may be associated with currency controls in a fixed exchange rate regime.

a. Corruption (2)

b. Capital flight (2)

b. Multiple and dual exchange rates (2)

c. Resource misallocation (2)

d. Administrative devaluations (2)

2.

Discuss the pros and cons of the fixed vs. the flexible exchange rate with regard to the following:

a. Policy insulation (2)

b. Adjustment costs (2)

c. Speculation (2)

d. Risk and trade (2)

e. The evidence to date with regards the relative efficiency of the two exchange rate regimes. (2)

3.

a. Cite and explain two market signals informing policy makers that devaluation is required. (2)

b. Explain how a country might choose a peg. (2)

b. Cite and explain two factors that might limit the effectiveness of devaluation. (2)

c. Explain how devaluation might lead to “expenditure-switching. (2)

d. Cite and explain two costs of devaluation. (2)

4.

a. Suppose a currency appreciates in a managed float, list and explain four expected impacts on the balance of payments under the elasticity approach to the balance of payment. (4)

b. Explain why the M-L condition may not be satisfied for LICs discussing both imports and exports (6).

5.

a. Cite and explain the classical monetary adjustment mechanism in a monetarist framework. (2)

b. Cite and explain any three Keynesian criticisms of this adjustment mechanism. (6)

c. What did Keynes propose as an alternative adjustment mechanism? (2)

6.

a. Explain the process and the mechanism by which self-correcting would function in the modern monetary approach to the balance of payment. (4)

b. Use the monetary approach to analyze the impact of a change in any three of the following: (6)

i. Y (compare with Keynesian prediction – income approach to balance of payments)

ii. Cr.

iii. Res

iv. PF (compare with elasticity approach to balance of payment)

v. R

7. Discuss the following problems that might be associated with a fixed exchange rate:

a. Reserve depletion and structural adjustment (3)

b. Incompatibilities (3)

c. Liquidity crunch (2)

d. Inflation devaluation cycle (2)

8. Cite and explain three parameters that are important for effective policy in an open economy framework?