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The unwinding of the U.S.
Step by step
Solved in 3 steps
- India’s preparedness In May 2013, the Fed indicated the possibility of tapering, (a phenomenon of winding liquidity and reducing money supply which would increase interest rates). Higher interest differential in US caused a panic in Indian stock markets and Bond markets leading to a capital flight. India was in dire straits. The three pressure points that emerged were the unsustainable current account deficit (which had risen to 4.8% of GDP); the possibility of ratings downgrade by international credit rating agencies to junk; and lack of adequate foreign exchange reserves to fight a speculative attack on the rupee. The finance minister vowed to maintain the path of fiscal consolidation and bring down the fiscal deficit to below 5% of GDP. Various cuts in plan and non-plan expenditure have been instituted . It was around the same time that a change of guard was happening in the RBI. The new incoming RBI governor, with the finance minister rolled out several measures to setup a…Assume an open economy with a fixed exchange rate and a credible inflation target. Also assume that the economy is in an expansionary gap, with an inflation that is lower than the target level. Thus, in the short-run, ______ could be used to obtain a quicker stabilization of the economy back to potential output. In the long-run, self-correction is ________ to reach the inflation target. Select one alternative: fiscal policy; preferable monetary policy; preferable None of the alternative solutions provided monetary policy; not preferable fiscal policy; not preferable Climate change is a phenomenon with _______. Select one alternative: None of the alternative solutions provided diminishing marginal returns increasing marginal returns positive externalities negative externalitiesCountry Z has a fixed exchange rate policy and its own currency. Country Z experienced an inflation rate of 27% in the past year, whereas a weighted price index for its trading partners has only risen by a rate of 3%. In the previous year, country Z had a relatively balanced current account. The Central Bank of Country Z decided to devalue its nominal exchange rate by 20%. Assuming that Country Z experienced no significant external shocks during the year and did not introduce any changes in its trade policies, will country Z’s exchange rate be overvalued or undervalued this year after this nominal devaluation? Will that lead the current account balance to change? In which direction is it likely to change?
- Show the effects of expansionary policy on output and the price level in an open economy when there is full employment.In light of your answers to parts (b) and (c), compare the relative effectiveness of fiscal and monetary policy in influencing aggregate demand when the exchange rate is floating.You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a quota on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Given this change, the dollar (appreciate, depreciate) . Fill in the following table with the effect of a quota on the following items: Supply of Loanable Funds Real Interest Rate Domestic Investment Net Exports in crease, decrease, or no change increase, decrease or no change increase decrease or no change increase , decrease or no change
- How to increase or decrease government spending to achieve trade balance ( NX=0 )Select all of the following statements which can be said of a country with a current account deficit over the previous year: The country is exporting more than it is importing, assuming that net foreign aid and investment income is zero. The country was a net borrower over the previous year. Assuming zero net foreign aid and investment income, the country imported more than it exported. The country will experience upward pressure on its currency prices. The country must decrease its currency reserve account.Explain how the current fiscal policy agenda (as per the annual budget review released by national treasury) impacts South Africa s global competitiveness through specially its balance of payments, (refer to both trade - and Capital related implication)
- I need the answer as soon as possibleCatherin Mann (2006), “The Current Account and the Budget Deficit: A Disaggregated Perspective,” in Kopcke, Tootell, and Triest (eds.), The Macroeconomics of Fiscal Policy, MIT Press In the article, Mann notes that the foreign financing of the US current account deficit has increasingly taken the form of foreigners purchasing US Treasury bonds. She is concerned that the increase of foreign holdings of US Treasury bonds may worsen the US current account deficit in the future. Which of the following statements is inconsistent with her reasons behind the concern? a. As global interest rates starts to climb, the overall payments on interest-bearing liabilities (including US Treasury bonds) will rise. b. The interest paid on US government debt (ie, US Treasury bonds) will be increasingly paid to foreign holders, setting up a negative feedback loop between fiscal deficit and current account deficit. c. The greater the US current account deficit, the larger the risk of eventual, sharp…The recent Trump tax cuts are projected to increase the national debt by $24.5 trillion over the next 20 years. This will be financed through future taxes. Americans' future standard of living will increase if the tax cuts produce a large increase in current and future GDP the government increases expenditures net exports rise substantially the current account goes into surplus
