Assignment:
Please type the answers to FOUR of the following five questions. Please limit your answers to no more than two pages, double-spaced, per question. A well presented answer will draw upon information presented in class and/or the required reading, but there is no need for further research. You have time to edit and proof-read your work. Writing counts!
1. Explain the relationship between the current account of the balance of payments and the international investment position of a nation. Since the late 1980s, the U.S. has become the world's largest debtor nation. Explain why some observers feel that this net negative balance of international indebtedness is a problem and why others do not.
2. On several occasions (the Plaza Accord, the Louvre Accord, etc.), the major industrialized countries agreed to take concerted actions to affect the value of the U.S. dollar. In these instances, the countries used the foreign exchange markets to raise or lower the value of the dollar. Explain these actions and also other policies that could be taken by these governments instead to affect the value of the dollar. Why did both the United States and its trading partners first want the dollar to depreciate and then appreciate?
3. With the demise of the Bretton Woods fixed exchange rate system, the major functions of the International Monetary Fund have been to both serve as a lender of last resort and also to help countries coordinate macroeconomic policies. Explain why macroeconomic policy coordination is important for the stability of exchange rates.
4. Discuss how international factor movements can be seen as a substitute for international trade. How might they be seen as complements? How might trade barriers (or the lack of trade barriers) be related to this question?
5. Discuss some of the similarities and some of the differences between NAFTA and the European Union. What implications do you think the differences will have for the ultimate impacts of the two agreements?