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Author Question: Explain why macroeconomic policies that are coordinated can enhance economic growth, but why ... (Read 308 times)

jake

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Explain why macroeconomic policies that are coordinated can enhance economic growth, but why policies that are not coordinated can increase global imbalances.
 
  What will be an ideal response?

Question 2

Explain some of the reasons why the HO model is difficult to test empirically. Does this mean that it is not a useful model of trade?
 
  What will be an ideal response?



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ngr69

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Answer to Question 1

If a group of industrial economies decide jointly to expand their economies with fiscal and monetary policies, then growth in their incomes raises incomes around the world as their demand for imports stimulates production in other countries. If all economies expand simultaneously, then no country is burdened by a sudden excess of imports over exports. Their exports grow along with their imports and with the growth in demand in their trading partners' economies. If a country uses expansionary policies when other countries are not doing the same, the country is likely to have a deterioration in their current accounts since their trading partners are not growing at the same rate. If expansionary fiscal policies cause interest rates to rise, then a further deterioration in the current account is likely due to the appreciation of the currency resulting from the inflow of foreign capital. Thus global imbalances increase.

Answer to Question 2

Problems with accurately measuring factor endowments and standardizing units for that they can be compared make it difficult to test the HO model. The model also cannot capture technological differences between countries, as well as a variety of other factors, such as economic policy, economies of scale, and corporate structure. Even with these issues, economists generally believe that endowments matter and that the HO model is a useful way of explaining the effects of trade on factors of production.




jake

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Reply 2 on: Jun 30, 2018
Thanks for the timely response, appreciate it


kilada

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Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

 

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