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Eco 302: Week 10 Homework

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ECO 302: Week 10 Homework
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17.2. If a country runs a budget deficit must it also run a current-account deficit?

How does the linkage between the two deficits depend on the relation between budget deficits and national saving?

17.3. A technology shock for a single country
Consider a temporary rise in the technology level, A, in the home country.
Assume that no change occurs in the terms of trade.

17.4. Taxes and the current-account balance
Discuss the effects on a country’s current-account balance from the following changes in tax rates:

17.5. A change in the terms of trade
Suppose that the home country is Brazil, which produces a lot of coffee for export. We considered in the text a change in the terms of trade that stemmed from a disturbance in the rest of the world. Suppose, instead, that a temporary shock at home—say a failure of Brazil’s coffee crop—raises the relative price of coffee. In this case, how does the disturbance affect Brazil’s current-account balance?

Chapter 18, Review Question 4
Does the central bank have discretion over the quantity of domestic money in a fixed exchange rate system? Show how an attempt to carry out an independent monetary policy can lead to devaluation or revaluation. Why might the attempt lead to trade restrictions?

18.7. A shift in the demand for money
Consider an increase in the real demand for money, Md/P, in the home country.

18.9. President Nixon’s departure from the gold standard in 1971
Under the Bretton Woods System, the United States pegged the price of gold at $35 per ounce.
a. Why did trouble about the gold price arise in 1971?

b. Was Nixon right in eliminating the U.S. commitment to buy and sell gold from foreign official institutions at a fixed price? What other alternatives were there? For example, what was the classical prescription of the gold standard? The French suggested...


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