Which of the following will NOT contribute to the appreciation
of a currency?
Persistent trade deficit
Rampant corruption
Low interest rates
Social unrest
High inflation
5. a) Explain how to budget deficit can create a trade
deficit.
b) Briefly discuss how time lag could be an argument against
policy activism. What is the role of automatic stabilizer in this
context? Explain with examples
c) What is the time inconsistency problem? Give two examples of
time inconsistency problem that are not in your book.
Sustained inflation can result from government budget
deficits
whether or not the deficits are persistent and whether or not
the deficits are financed only by an increase in government bond
holdings by the public.
whether or not the deficits are persistent, but only if the
deficits are financed at least in part by money creation.
only if deficits are persistent, but whether or not the deficits
are financed by an increase in government bond holdings by the
public.
only if...
Question 1: The US Economy is experiencing a
huge trade deficit over last few decades. Explain the causes and
consequences of this trade deficit on the US economy.
Question 2: Under what circumstances the trade
deficit is really bad and under what circumstances the
trade deficit is not too bad? Explain.
Trade balance:
a) Is trade deficit always a bad thing? Explain you answer in
details. Support your argument with an example.
b) Assume that government provides export subsidies to encourage
the export of goods. Will this policy result into an improved trade
balance in the long run? Why? Why not? (hint: think about the
effect this policy has on real exchange rate)
Will a depreciation of the dollar correct the US trade
deficit?
The paper should include the following:
Introduction–what is the question you are addressing? What are
the main issues? Give the reader a quick summary of what you will
explain.
Body
Brief discussion of the text book view: the IS-LM-BP floating
rate model which relies on this corrective mechanism.
Does the real world evidence support the textbook view?
Conclusion – summarize your findings and answer the
question.
Bibliography (use the...
Explain the difference between a trade deficit, a current
account deficit, and a balance of payments deficit. Explain fully
why a current account deficit can be good for a country.