Problem 1. What is the impact of a trade deficit on the exchange rate value of the dollar? Make sure you explain how transactions in the foreign exchange market (as a result of the trade deficit) result in price pressures placed on this change exchange rate.
Problem 2. Address the economic motivations underlying international trade. Under what circumstances would two countries have no incentives to trade?
Problem 3. Provide an actual (real-world) example that could be used to demonstrate the price inelasticity of demand for a given good. Be sure to provide a quantitative definition of price inelastic demand as well as support for the real-world example you provide.
Problem 4. What is the purpose of anti-trust legislation? In your answer, be sure to include explicit benefits that can be realized by consumers as a consequence of the enforcement of this legislation. What are some potential costs (to consumers)?
Problem 5. Explain the Keynesian perspective with respect to deficit spending by the federal government.
Problem 6. Assume the banking system is in reserve equilibrium. The Fed conducts an open market purchase of Treasury securities in the amount of $1 billion. The reserve requirement against deposits is 10%. Identify the potential amount of the money supply increase as a consequence of the Fed's action and describe fully how money is created by the banking system subsequent to the Fed's open market purchase of Treasury securities in the amount of $1 billion.
Problem 7. Why does the Monetarist school of economic thought maintain that monetary stimulus is doomed to be ineffective in the long run?
Problem 8. Identify and explain significant aspects associated with the task of measuring unemployment. What people are not counted as being unemployed in the U.S. economy? Note: Do not merely describe how the unemployment rate is calculated; instead, make sure you explain the problems associated with measuring the unemployment rate.
Problem 9. A country operates under a flexible exchange rate system and is experiencing a deficit in its Current (trade) Account. Ignoring all other Balance of Payments categories, what should be the net effect of the trade deficit on the country's Capital Account? Explain.
Problem 10. Explain why, at one point in time, a Keynesian approach to managing the macro-economy might be appropriate while, at another point in time, a Classical approach might be more likely to produce a superior outcome. Make sure the outcome you address includes inflation and employment issues.
Problem 11.
a. What are the advantages and limitations of International Trade
b. What are the effects on international trade on the U.S. economy?
c. Explain how changes in fiscal and monetary policies affect exchange rate.