ECO3203 –Short Assignment – Ch 8-9-13

(2 pt) Ch 13 – Problem 5 pg 396

Business executives and policy makers are often concerned about the competitiveness of American industry (this means=the ability of the U.S. industries to sell their goods profitably in world markets = exports).

1. How would a change in the nominal exchange rate affects competitiveness (exports) in the short run when prices are sticky?
2. Suppose you wanted to make domestic industries more competitive but did not want to alter income. According to the Mundell-Fleming model, what combination of monetary and fiscal policy should you pursue? (graphs are optional).

 (2 pt) Ch 13 Problem 2 page 396

A small open economy is described by the following equations:

Y = C + I + G + NX

C = 50 + 0.75(Y-T)

I = 200 – 20r

G = 200

T = 200

NX = 200 – 50 e

M/P = Y – 40r

M = 3000

P=3

r = r* =5

1. Derive the IS* and LM* curves

b)   Calculate the equilibrium exchange rate, income, and net exports

• Assume a floating exchange rate. Calculate what happens to the exchange rate, income, net exports and money supply if the government increases expending by 50
• Now, assume a fixed exchange rate. Calculate what happens to the exchange rate, income, net exports, and the money supply if the government increases expending by 50.

(1pt) Read case study “The Miracle of Japanese and German Growth” page 216 Ch 8.

Problem 2. In the discussion of German and Japanese postwar growth, the case describes what happens when part of capital stock is destroyed in a war.

By contrast, suppose that a war does not directly affect capital stock but that casualties reduce the labor force. Assume that the economy in a steady state before the war, the savings rate is unchanged, and the rate of population growth after the war is the same as it was before the war.

1. Discuss: what is the immediate impact of the war on total output and on output per person (GDP per person)?
2. Discuss: What happens in the long run to output per worker in the post war economy? Is the growth rate of output per worker after the war smaller or greater than it was before the war?