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Macroeconomics

David Colander

Chapter 21

Macro Policy in a Global Setting - all with Video Answers

Educators

Chapter Questions

01:04

Problem 1

Why might a sudden large drop in the value of the dollar put pressure on the United States to run contractionary monetary and fiscal policy? LO1

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator

Problem 2

If the value of the dollar is expected to fall:
a. Would you rather be holding dollars or other currencies?
b. Would the same argument you used to answer $a$ also hold for the Chinese government?
c. Why might the Chinese government buy dollars even though it expects the value of the dollar to fall? LO1

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Problem 3

What effect on the U.S. trade deficit would result if China and Japan ran an expansionary monetary policy? $\mathrm{LO} 2$

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Problem 4

What would be the effect on the U.S. trade deficit if China and Japan ran a contractionary fiscal policy? LO2

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02:06

Problem 5

Draw the schematics to show the effect of expansionary monetary policy on the trade deficit. $\mathrm{LO} 2$

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
13:03

Problem 6

You observe that over the past decade a country's trade deficit has risen.
a. What monetary or fiscal policies might have led to such a result?
b. You also observe that interest rates have steadily risen along with a rise in the exchange rate. What policies would lead to this result?
c. Could another explanation be that people in other countries wanted to hold lots of that country's debt? $\mathrm{LO} 2$

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
01:30

Problem 7

Congratulations! You have been appointed an adviser to the IMF. A country that has run trade deficits for many years now has difficulty servicing its accumulated international debt and wants to borrow from the IMF to meet its obligations. The IMF requires that the country set a target trade surplus.
a. What monetary and fiscal policies would you suggest the $\mathbb{I M F}$ require of that country?
b. What would be the likely effect of that plan on the country's domestic inflation and growth?
c. How do you think the country's government will respond to your proposals? Why? LOZ

Majid Borumand
Majid Borumand
Numerade Educator
01:59

Problem 8

Congratulations! You've been hired as an economic adviser to a country that has perfectly flexible exchange rates. State what monetary and fiscal policy you might suggest in each of the following situations, and explain why you would suggest those policies.
a. You want to lower the interest rate, decrease inflationary pressures, and lower the trade deficit.
b. You want to lower the interest rate, decrease inflationary pressures, and lower a trade surplus.
c. You want to lower the interest rate, decrease unemployment, and lower the trade deficit.
d. You want to raise the interest rate, decrease unemployment, and lower the trade deficit. $\mathrm{LO}_2$

Banhishikha Sinha
Banhishikha Sinha
Numerade Educator
01:32

Problem 9

Is the United States justified in complaining about Japan's and China's use of an export-led growth policy? Why? LO3

Jennifer Stoner
Jennifer Stoner
Numerade Educator
03:10

Problem 10

In the 1990 s, Japan's economic recession was much in the news.
a. What would you suspect was happening to its trade balance during this time?
b. What policies would you guess other countries (such as those in the Group of Eight) were pressuring Japan to implement? $\mathrm{LO}_3$

Alejandro Ruiz
Alejandro Ruiz
Numerade Educator
06:47

Problem 11

According to a study done at J.P. Morgan, as world trade has increased from about 12 percent of world output in the 1970 s to about 25 percent of world output in the early 2000 s, global differences in growth rates has been decreasing, from around 3 percent in the 1970 s to about 1 percent in the early 2000 s.
a. If that is true, would one expect more or less stabilization coming from trade with other countries?
b. What does this convergence of growth rates suggest about the possibility of a global recession?
c. If a global recession occurred, what policy recommendation would you put forward? LO4

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
03:30

Problem 12

How does internationalizing the debt reduce crowding out? LO5

David Gagnon
David Gagnon
Numerade Educator

Problem 13

What are the costs of internationalizing the debt? LO5

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05:27

Problem 14

What would likely happen to exchange rates if one country has a comparative advantage in production of most goods and the financial and capital account was balanced? (Difficult) LO6

Pragya Ahuja
Pragya Ahuja
Numerade Educator