Questions:
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. Remember, this is a take-home exam. 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. 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.
3. Explain the various types of exchange rate systems that countries can adopt, and discuss the benefits and weaknesses of each.
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?