2. Suppose that your government introduces an investment tax credit, which subsidizes domestic investment. How does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance?
8. Suppose that your countrymen decide to increase their saving. a. If the elasticity of net capital outflow with respect to the real interest rate is very high, will this increase in private saving have large or small effect on domestic investment? b. If the elasticity of exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on your real exchange rate?

4. How would the following transactions affect your country's net capital outflow? Also, state whether each involves direct investment or portfolio investment. a. A local mobile phone company establishes an office in the Czech Republic. b. Harrod's of London sells shares to a pension fund in your country. c. The Swedish car company, Volvo, expands its factory in your country. d. A local mutual fund sells its Volkswagen shares to a French investor.
10. A can of iced tea costs 1 ringgit in Malaysia and 10 baht in Thailand. What would the baht-ringgit exchange rate be if purchasing- power parity holds? If a monetary expansion caused all prices in Thailand to double, so that iced tea rose to 20 baht per can, what would happen to the baht-ringgit exchange rate?

2. Suppose that changes in bank regulations expand the availability of credit cards, so that people need to hold less cash. a. How does this event affect the demand for money? b. If the central bank does not respond to this event, what will happen to the price level? c. If the central bank wants to keep the price level stable, what should it do?
13. Explain whether the following statements are true, false, or uncertain. a. "Inflation hurts borrowers and helps lenders, because borrowers must pay a higher rate of interest." b. "If prices change in a way that leaves the overall price level unchanged, then no one is made better or worse off." c. "Inflation does not reduce the purchasing power of most workers."

Construct a table listing the potential effects of inward foreign direct investment on developing countries. In one column, list the possible benefits of FDI, in a second column, list the possible negative effects FDI can bring. Some of these effects may be political, others economic, social, or environmental. Briefly explain each potential benefit and each potential cost. Please explain clearly

We have seen in class that the labor force participation of women has increased considerably in the last 50 years in many countries of the world. Unfortunately, during the same time, in some countries, gender wage gap has increased. Newspapers in these countries have reported this increase in the gender wage gap as evidence that there have been an increase in the number of discriminating firms or in how discriminating they are. Using the model of discrimination learned in class, provide an alternative explanation of what could have increased the gender wage gap. Use a graph.

Consider a firm using a technology defined by the linear production function = q = f(K, L) = K + L

Which of the following statements are correct? There might be multiple

a) The elasticity of output with respect to capital is equal to the inverse of the average product of capital

b) The elasticity of output with respect to labor is constant

c) The elasticity of long-run cost with respect to output is equal to 1

d) The elasticity of substitution is infinity

Discuss the political economy of trade policies. Explain why some policies get implemented even though they may be against economic principles.

Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of deposit insurance in a fractional reserve system?

Answer the question in no less than 10 sentences.

It was around November, 2019, the Government of The Bahamas announced a Rate Reduction Bond for Bahamas Power and Light of $580 million. This amount of $580 million, is $70 million less than what was previously announced of $650 million. The Bahamas Government had also stated at the time of the announcement that the terms and conditions associated with the $580 million bond placement were still being worked out as the rating agencies, Moody’s, Fitch and or Standard and Poor’s had not reviewed the offering to develop the appropriate pricing of the bonds, where the pricing in effect, is the interest rate placed on these bonds.

The borrowing by the Government of The Bahamas on behalf of BPL has created some degree of anxiety in some quarters, among residential and commercial subscribers of BPL services. This anxiety is due in no small measure to the proposed price increase in the price electricity to assist in offsetting the cost associated with financing the BPL bond. There is a proposed price increase of 15% by consumers, both residential and commercial consumers to finance the BPL Bond.

1. What is your understanding of the Rate Reduction Bond? What is the purpose behind the Bond? Why is it referred to as a rate reduction bond?
2. What is the relevance/importance of having the bonds rated by international agency, i.e. Standard and Poor’s, Fitch and or Moody’s? What is the significance, if any, of a favorable rating by one or more of these rating agencies?
3. What are your thoughts based on your own research/analysis, of the approach taken by the Government of The Bahamas to improving the efficiency of the corporation through this, i.e. Bond Placement, and other measures to improve the efficiency of the corporation?
4. Based on your analysis, what are your general thoughts on the 15% increase in electricity bills?
5. What impact, if any, will the increase have for the following entities:
   1. Consumers
   2. Business community
   3. General economy of The Bahamas
6. What recommendations, if any, will you provide to the Government of The Bahamas based on your research as it relates to this topic?

The fund’s loan agreement with Ecuador will worsen unemployment and poverty

Ecuadorian police arrest a protestor during a demonstration against president Lenin Moreno’s austerity measures. Photograph: Cristina Vega/AFP/Getty Images

When people think of the damage that wealthy countries – typically led by the US and its allies – cause to people in the rest of the world, they probably think of warfare. Hundreds of thousands of Iraqis died from the 2003 invasion, and then many more as the region became inflamed.

But rich countries also have considerable power over the lives of billions of people through their control over institutions of global governance. One of these is the International Monetary Fund. It has 189 member countries, but the US and its rich-country allies have a solid majority of the votes. The head of the IMF is by custom a European, and the US has enough votes to veto many major decisions by itself – although the rich countries almost never vote against each other.

To see what the problem looks like, consider a recent IMF loan. In March, Ecuador signed an agreement to borrow $4.2bn from the IMF over three years, provided that the government would adhere to a certain economic program spelled out in the arrangement. In the words of Christine Lagarde – then the IMF chief – this was “a comprehensive reform program aimed at modernizing the economy and paving the way for strong, sustained, and equitable growth”.

But is it? The program calls for an enormous tightening of the country’s national budget – about 6% of GDP over the next three years. (For comparison, imagine tightening the US federal budget by $1.4 trillion, through some combination of cutting spending and raising taxes). In Ecuador, this will include firing tens of thousands of public sector employees, raising taxes that fall disproportionately on poor people, and making cuts to public investment.

The overall impact of this large fiscal tightening will be to push the economy into recession. The IMF’s projections are for a relatively mild recession until next year, but it will likely be much deeper and longer – as often happens with IMF programs. Unemployment will rise – even the IMF program projections acknowledge that – and so will poverty.

One reason that it will likely turn out much worse than the IMF projects is that the program relies on assumptions that are not believable. For example, the IMF projects that there will be a net foreign private sector inflow into the economy of $5.4bn (about 5% of GDP) for 2019–2022. But if we look at the last three years, there was an outflow of $16.5bn (17% of GDP). What would make foreign investors suddenly so much more excited about bringing their money to Ecuador? Certainly not the recession that even the IMF is projecting.

There are other implausible assumptions and even some that result from accounting errors, and sadly they all go in the same direction. It seems that the program’s “expansionary austerity” – something that almost never happens – is unlikely to make Ecuador into a world-famous exception, where the economy grows as aggregate demand is slashed.

The program also seeks to reshape the economy in ways that, to many Ecuadorians, would appear to be political. The central bank will be made more autonomous; public assets will be privatized; and labor law will be changed in ways that give employers more unbridled power over workers. Some of these changes – for example, the separation of the central bank from other government decision-making – will make economic recovery even more difficult.

All this is taking place under a government – elected in 2017 on a platform of continuity – that seeks to reverse a prior decade of political reforms. These reforms were, by measures of economic and social indicators, successful. Poverty was reduced by 38% and extreme poverty by 47%; public investment – including hospitals, schools, roads, and electricity – more than doubled as a percent of the economy. But the prior government was a leftwing government that was more independent of the US (by, for example, closing down the US military base there).

One can imagine what this looks like, as the Trump administration now gains enormous power in Ecuador not only through the $4.2bn IMF loan, but also $6bn from related Washington-based multilateral institutions such as the World Bank and Inter-American Development Bank. (This totals about 10% of Ecuador’s annual GDP – equivalent to more than $2.1tn in the US.)

Actually, we don’t have to imagine much, since the new president, Lenín Moreno, has aligned himself with Trump’s foreign and economic policy in the region. At the same time, his government is persecuting his presidential predecessor, Rafael Correa, with false charges filed last year that even Interpol won’t honor with an international warrant. Other opposition leaders have fled the country to avoid illegal pre-trial detention – in the case of former foreign minister Ricardo Patiño, for making a speech that the government did not like.

Since Washington controls IMF decision-making for this hemisphere, the Trump administration and the fund are implicated in the political repression as well as the broader attempt to reconvert Ecuador into the kind of economy and politics that Trump and Pompeo would like to see, but most Ecuadorians clearly did not vote for.

All this provides even more reasons why there needs to be serious reform at the IMF, starting with making it more of a multilateral institution, as it pretends to be. In the past 20 years, the US Congress – which has to approve funding increases for the IMF – has on rare occasions intervened to eliminate some abuses. In the early 2000s, for example, millions of poor children in Africa gained access to primary education and health care because the US Congress made it impossible for the IMF and World Bank to require their governments to charge user fees for these basic needs – as these institutions had been doing for years.

In the coming weeks, the IMF will almost certainly choose a new, affluent white European to head the institution. Progressive members of Congress, who care about what US foreign policy does to the rest of the world, should weigh in with some demands for reform.

1. PLEASE GIVE A SHORT ANALYSIS OF THIS ARTICLE AND EXPLAIN WHAT THE IMF COULD HAVE DONE TO BETTER HELP ECUADOR

Your response should be 2-3 paragraphs and incorporate at least one outside reference. You will NOT be able to see others responses until you make the initial posting. You are then encouraged to engage in the discussion as frequently as possible.

Sembotix Company has several divisions including a Semiconductor Division that sells semiconductors to both internal and external customers. The company's X-ray Division uses semiconductors as a component in its final product and is evaluating whether to purchase them from the Semiconductor Division or from an external supplier. The market price for semiconductors is $100 per 100 semiconductors. Dave Bryant is the controller of the X-ray Division, and Howard Hillman is the controller of the Semiconductor Division. The following conversation took place between Dave and Howard:
Dave:

I hear you are having problems selling semiconductors out of your division. Maybe I can help.
Howard:

You've got that right. We're producing and selling at about 90% of our capacity to outsiders. Last year we were selling 100% of capacity. Would it be possible for your division to pick up some of our excess capacity? After all, we are part of the same company.
Dave:

What kind of price could you give me?
Howard:

Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $100 for 100 semiconductors.
Dave:

I'm not so sure we can swing that. I was expecting a price break from a “sister” division.
Howard:

Hey, I can only take this “sister” stuff so far. If I give you a price break, our profits will fall from last year's levels. I don't think I could explain that. I'm sorry, but I must remain firm—market price. After all, it's only fair—that's what you would have to pay from an external supplier.
Dave:

Fair or not, I think we'll pass. Sorry we couldn't have helped.

-------------------

Is Dave behaving ethically by trying to force the Semiconductor Division into a price break? Comment on Howard's reactions.

Question 2

A. Identify any two social dilemmas associated with the situation around COVID-19.

B. For each one, specify how it satisfies the definition of a social dilemma.

C. Can you suggest ways to resolve these social dilemmas?

D. Can you represent one of the dilemmas as a game (in table form)?

1. Explain how the Heckscher-Ohlin theorem supports international trade between nations.