THE_BIGGEST_QUESTIONS - THE BIGGEST QUESTIONS 1 What causes...

Info icon This preview shows pages 1–3. Sign up to view the full content.

THE BIGGEST QUESTIONS 1. What causes business cycles and unemployment and what can/should we do about each? 2. What causes inflation in the short-run? in the long-run? what should we do about each? 3. What policies would you recommend to stimulate long-run economic growth? 4. What roles do money and the financial system play in the macroeconomy? 5. How do international trade and international finance impact the macroeconomy? INTERNATIONAL MACRO 1. FREE TRADE IS POTENTIALLY BENEFICIAL TO ALL TRADING PARTNERS, ALTHOUGH NOT NECESSARILY EQUALLY SO o This is due to comparative advantage -- when countries specialize in whatever production they have a relative advantage in (lowest opportunity cost ) o Also, trade leads to increased competition and transmission of ideas and technology o Thus barriers to trade are ‘bad’ o Quota’s, tariffs, restrictions on dumping all reduce gains from trade. Attempts to ‘save jobs’ are very expensive per job and inefficient : However, trying to assist those who lose jobs with retraining, tax breaks etc may be morally and politically ‘good’ 2. IMPACT OF OPEN ECONOMY ON MACROECONOMIC ISSUES o X increases aggregate D, M reduces it (D=C+I+G+X-M) : determinants of X - $, foreign income - note using $ to mean dollar exchange rate with other currencies : determinants of M - $, domestic income o X-M will be called current account balance later (roughly) 3. DETERMINANTS OF EXCHANGE RATES IN THE SHORT RUN – FLEXIBLE OR FLOATING RATES o Exchange rate is determined by the S&D for currency derived from S&D for Goods and Services (and real and financial assets which we will ignore for a moment) o Look at $ market (against the yen say) – exchange rate is # of yen per dolla – Yen/$ : $ is denominator in $ market If Japanese wish to buy more American goods or services, then : Demand for dollars increase from D1 to D2 since Japanese ultimately pay for American goods and services with $ : $ appreciates (floats up) to intersection of S1 and D2 – 1$=more yen
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

: Any increase in demand for a countries goods or services – X will cause currency to
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern