Consider the determination of real exchange rates in a large open economy with a flexible exchange rate regime. If today’s technology increase, e* will (increase/decrease/stay/none). If tomorrow’s technology is expected to improve, e* will (increase/decrease/stay/none) . If M decreases, e* will (increase/decrease/stay/none). If the government decreases G1 while keeps G2 unchanged, e* will (increase/decrease/stay/none),

1.Capital investment, labor force and its productivity, and technology are three key elements that determine the total output of an economy. True or False

2.In the long run, when capital is abundant, the marginal benefit of capital investment is decreasing, so technological changes are more important in supporting economic growth. True or False

3.GDP calculates the total market values of newly produced final goods and services to represent the size of the economy. True or False The labor force participation rate shows what percentage of the working-age population is in the labor market. True or False

4.The unemployment rate indicates what percentage of the labor force in the labor market is currently unemployed. True or False

5.When a country opens its economy to the rest of the world, if the original domestic price is lower than the global price, an export will incur, which drives up the domestic price to the global level. True or False

6.When a country opens its economy, if the original domestic price is higher than the global price, imports will incur which drives the domestic price to move lower to the global price.True or False

7.When the domestic price of a good is higher than the global price of the same good, what happens in the context of an open economy? A. It will increase domestic sales and also the domestic price. B. It will attract domestic sellers to sell to the international market. The additional sales drive the domestic price even higher. C. The domestic sales and price will both go down. D. It will attract international sellers, which will lead to import.

8.The additional supply will lower the domestic price to the same level as the global price. A foreign exchange system that allows the exchange market to determine exchange rates but with restrictions on daily trade volume and exchange rate movement is called: A. free floating system. B. pegging system. C. managed floating system. D. fixed system.

9.A local gas station shows that the price of regular unleaded is $4.19 a gallon. What is the function of money here? A. medium of exchange B. store of value C. unit of account D. standard of deferred payment

10.According to the quantity theory of money, which of the following statements is NOT true? A. Else the same, the higher the velocity of circulation, the less money needed for the same amount of transactions. B. Else the same, inflation will lead to larger quantity of money needed for an economy. C. Else the same, the higher the price level, the lower the demand for money. D. Else the same, a larger real GDP generally requires more money in circulation.

11.If a country has tax revenues of $7 trillion and government expenditures of $7 trillion, its government has a(n): A. unknown situation. B. budget surplus. C. budget deficit. D. balanced budget.

12.In recent months, the exchange rate between the Chinese Yuan and the U.S. dollar moved from 6.1 Yuan/USD to 6.3 Yuan/USD. Which currency depreciated? A. Neither B. Both C. Dollar D. Yuan Katy sets up a savings account to manage money for her child's education.

13.What is the function of money here? A. standard of deferred payment. B. medium of exchange. C. store of value. D. unit of account. Micheal, a recent Shepherd graduate, financed his studies with a student loan.

14.Now he works as a trainer and makes monthly payments to the loan. What is the function of money here? A. medium of exchange B. unit of account C. standard of deferred payment D. store of value Most economic policies are a two-edge sword.

15.The overuse of a policy may cause significant side effects. The side effects of an expansionary fiscal policy include: A. government budget deficit. B. potential inflation. C. that the government may have too much influence on the market economy, and its efficiency is always of question. D. all of the above.

16.One year ago, the federal discount rate (a key interest rate) was 2.5%, and the current federal discount rate is 0.5%. Such adjustment aims to: A. decrease the monetary base. B. increase the cost for firms to borrow from the Fed. C. balance federal budget. D. encourage lending.

17.The Short-Run Phillips Curve shows: A. that monetary policy has an inverse effect on the unemployment rate and the inflation rate. B. monetary policy is effective in moving the real economy in the short run since it can affect the unemployment rate. C. There is a negative relationship between the inflation rate and the unemployment rate in the short run. D. all of the above.

18.The government expenditure multiplier refers to: A. that government spending has little impact on national economy. B. that each additional dollar spent by the government will lead to a less than one dollar increase in GDP. C. that government spending leads to less consumer spending. D. that government spending has a magnified effect on national economy.

19.To serve as a commodity money, an object must satisfy which of the following requirements? A. It has to be a commodity or token, which can be divided into small parts. B. It has to be generally accepted by the market participants to trade for goods and services. C. It has to be used as a method of settling a debt or payment. D. all of the above.

20.To serve as a commodity money, an object must satisfy which of the following requirements? A. It has to be a commodity or token, which can be divided up into small parts. B. It has to be generally accepted by the market participants to trade for anything and everything. C. It has to be used as a method of settling a debt or payment. D. All of the above.

21.Tom bought 6 oranges for 3 dollars. Money serves the function of: A. standard of deferred payment. B. store of value. C. medium of exchange. D. unit of account. What is (are) the main objective(s) of fiscal policy: A. higher economic growth. B. full employment. C. low inflation. D. all of the above.

22.Which branch of the Fed oversees most financial institutions in West Virginia? A. Richmond B. Cleveland C. Washington DC D. Philadelphia

23.Which of the following items is NOT a form of money? A. Traveler's checks B. Coins C. Treasury bonds D. Cash Which of the following statements about the balance of payments in an open economy is correct? A. It includes current accounts, financial accounts and capital accounts. B. It is always in balance. C. A deficit of current accounts (i.e., trade deficit) is always balanced by a surplus in financial accounts (i.e., net investments in domestic assets). D. all of the above.

24.Which of the following statements is INCORRECT about M1 and M2? A. M2 includes M1, savings deposits, time deposits and money market funds. B. M1 and M2 are mutually exclusive. C. M2 is more broadly defined than M1. D. M1 is more liquid than M2.

25.Which of the following statements is NOT true? A. An increase in government spending directly increases the aggregate demand for goods and services. B. Lower taxes reduces business costs and increases aggregate supply. C. Although government spending may have a crowding-out effect on private investment and spending in the same field, the positive impact on the overall economy is greater. D. all of the above are true.

Is it better for a company to produce only one product? Or is it better for a company to produce several products? Put differently, is diversification better than specialization, or is specialization better than diversification? Please explain why you feel this way.

Comparative Advantage Models

Suppose two products are being produced in the US, auto and wheat. Labor is the mobile factor used in both productions. Capital and Land are two specific factors.

1) Draw the butterfly graph four all four markets (product market, productions, and labor market) and clearly label all four axes.

2) Explain why the PPF is curved in the Specific Factors model.

3) Will the PPF curve be a straight line for HO model?

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