ECON216_Spring2011_Tutorials_Chapter_14_questions_with_solution

ECON216_Spring2011_Tutorials_Chapter_14_questions_with_solution

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ECON216 Tutorial Chapter 14 1. (a) What policies can nations utilize to achieve internal and external balance when the nation is willing to change the exchange rate when facing a large and persistent balance of payments disequilibrium? (b) How do these policies operate to achieve the intended objectives? a. To achieve internal balance the nation can use expenditure-changing policies (i.e., fiscal and monetary policy) while to achieve external balance, the nation can use expenditure-switching policies (devaluation or revaluation). b. Expenditure-changing policies operate to increase production and income in the nation to correct recession and unemployment and to reduce production and income to correct inflation. On the other hand, expenditure-switching policies increase the demand for nation’s exports and reduce the nation’s demand for imports to correct a balance of payments deficit and work in the opposite direction to correct a surplus. 2. (a) How can fiscal and monetary policies be used to cure recession and balance of payments deficit when the nation is not willing to change the exchange rate even when facing
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ECON216_Spring2011_Tutorials_Chapter_14_questions_with_solution

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