[Solved] 1) Explain the connection between the US trade deficit and financial capital flows.

Document Content and Description Below

1) Explain the connection between the US trade deficit and financial capital flows. 2) Explain how comparative advantage determines the pattern of trade. Use an example to aid in your explanation. ... 3) Explain how the Stolper-Samuelson theorem indicates that free trade will (likely) worsen income inequality in the US, but (likely) narrow it for Mexico. 4) Show the effects on US welfare from each of the following events. a. Imposition of a tariff on a small, perfectly competitive market b. Imposition of a tariff on a small, imperfectly competitive market c. Imposition of a tariff on a large, perfectly competitive market 5) Show the effects on US welfare from each of the following events. a. Imposition of a quota on a small, perfectly competitive market b. Imposition of a quota on a small, imperfectly competitive market 6) If the US is a large importing country and imposes a tariff on the import of a good, what will the welfare effect on the exporting country be? 7) Assume that the US is a large country in the semi-conductor market. If the US is an exporter of the good and experiences a technological improvement, will the US always be better off? Show and explain why or why not. 8) National security demands have made it imperative for the US to close the toilet paper trade gap (just think what would happen in times of war if we couldn’t produce our own!). The government has decided to reduce our imports from 100 million units to 90 million units. As the supreme TP czar, which of the following policies should be chosen? Show and explain why. a. A production subsidy b. A consumption tax c. An import tariff 9) Show why in a competition between the Boeing and Airbus that autarky may be the preferred welfare situation to free trade. Explain how you draw this conclusion. 10) Explain why a VER is likely to generate lower welfare than a quota. 10) Explain why a VER is likely to generate lower welfare than a quota. 11) Explain what constraints the WTO places on US government actions. 12) Explain the advantages and disadvantages of fixed and flexible exchange rates. In your answer, consider the ramifications for fiscal and monetary policy. 13) Explain how trade may reduce pressure for immigration. 14) For each of the following cases indicate the expected change in the equilibrium exchange rate (€/$). Use supply and demand analysis (no credit without the graph). a) an increase in EU interest rates b) a fall in the price level in the US c) an increase in US barriers to imports from the EU 15) Explain why labor unions may wish to oppose international trade. Does this entail that this is a “good” government policy? Explain. 16) Explain why “dumping” is considered to be unfair trade. Does dumping – if unfair or not – cause harm in the dumped upon country? What condition is required for harm to accrue? 17) What is a senescent industry? How is protection for international trade supposed to aid this industry? How is it supposed to aid the country? Under what conditions will the aid actually accrue to the industry and the country? 1) Explain what is meant by “dollarization.” What might lead a country to make this choice for managing its money supply? 2) Explain how a managed float differs from a freely floating (flexible) exchange rate. 3) What are the relative advantages and disadvantages of fixed v. flexible exchange rate systems? 4) For each of the following cases, explain that is the “best” tool for the goal trying to be achieved. Clearly demonstrate why this is the “best” tool. a) The US wishes to contain pollution generated by the consumption of widgets. b) The US wishes to protect jobs in the widgets sector. c) The US wishes to restrain imports in the widgets sector to reduce the trade imbalance with Widgeria. 5) How does the existence of “3-way trades” undermine the usefulness of the supply and demand model of the exchange rate for precisely predicting what the exchange rate will be? 1) Explain how a fixed exchange rate may contribute to a currency crisis? Is any fixed exchange rate subject to this risk? 2) Given the following information where should you invest in order to maximize your return? e = 0.001 $/peso f = 0.0011 $/peso Nominal interest rate in the US = 8% Nominal interest rate in Mexico = 10% Given your investment pattern, how do you expect the variables to evolve over time? 3) What is the Law of One Price? Under what assumptions does the Law of One Price lead to the Purchasing Power Parity model of exchange rates? 4) Suppose that the money supply in the US falls. What will happen to the value of the dollar in the foreign exchange markets? Justify your answer using at least two (2) models of the exchange rate. 1) For each of the following changes, show the direction of shift (if any) for the IS curve. a) An increase in the foreign price level b) A fall in foreign income levels c) An increase in domestic tax rates d) A strengthening of the dollar in the foreign exchange markets e) A collapse in business confidence f) An increase in the money supply 2) For each of the following changes, show the direction of shift (if any) for the LM curve. a) An increase in the domestic price level b) A decrease in the money supply c) A fall in the precautionary demand for money d) A strengthening of the dollar in the foreign exchange markets [Show More]

Last updated: 2 years ago

Preview 1 out of 7 pages