Illustrate the effectiveness of monetary policy with fixed exchange rates. What will be an ideal response? ANSWER The required intervention to maintain the fixed exchange rate will undo any effect on income of an increase or decrease in the money supply. Illustrate by shifting LM curve and then explaining how intervention will return LM […]
It is still the conventional wisdom in the U.S. that compliance with NAFTA requirements is having a deleterious effect on U.S. highway safety standards, on U.S. pollution and other environmental standards, and on U.S. jobs. What facts would proponents of an expansion of NAFTA (e.g., to include all of Central and South American countries) need […]
Reform of a country’s trading system, including the reduction or elimination of trade barriers, is an example of A) an orthodox stabilization plan. B) a heterodox stabilization plan. C) economic populism. D) import substitution industrialization. E) structural reform. ANSWER E
If some industries exhibit increasing returns to scale in each country, we should not expect to see A) intraindustry trade between countries. B) perfect competition in these industries. C) interindustry trade between countries. D) Either B or C. ANSWER B
Discuss the effects of ongoing inflation based on the PPP theory. What will be an ideal response? ANSWER Other things equal, money supply growth at a constant rate eventually results in ongoing price level inflation at the same rate as the money supply growth, but changes in this long-run inflation rate do not affect […]
In 1975, wage levels in South Korea were roughly 5% of those in the United States. It is obvious that if the United States had allowed Korean goods to be freely imported into the United States at that time, this would have caused devastation to the standard of living in the United States, because no […]
Describe the environmental Kuznets curve. What will be an ideal response? ANSWER This curve shows the effect of increased per capita income on environmental damage. It has an inverted U shape that indicates that increased per capita income first increases and then decreases environmental damage.
Which of the following is NOT a situation providing a potential advantage for Mexico that makes it competitive compared to China in trade with the United States? A) The product line requires quick turn-around time from or to delivery. B) The need to manage a just-in-time inventory system C) Wages are low and the production […]
An American firm that buys foreign exchange because its managers expect the dollar to depreciate is A) increasing the supply of foreign exchange. B) increasing the demand for foreign exchange. C) speculating. D) Both A and B. E) Both B and C. ANSWER E
Analyze the following statement “the global financial crisis of 2008-2009 was a great illustration of how interdependent national economies are.” What will be an ideal response? ANSWER True. The global financial crisis that started in 2008, although commonly blamed on the U.S. quickly spread to all economies in the world. Although overt global policy […]
