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Author Question: It is possible that trade based on external scale economies may leave a country worse off than it ... (Read 205 times)

viki

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on: Jun 30, 2018
It is possible that trade based on external scale economies may leave a country worse off than it would have been without trade. Explain how this could happen.
 
  What will be an ideal response?

Question 2

What is the difference between the monetary approach to the exchange rate and monetary approach to the balance of payments? Briefly summarize the policy implications of the monetary approach.
 
  What will be an ideal response?


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InfiniteSteez

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Reply #1 on: Jun 30, 2018
Answer to Question 1

One answer is that the terms of trade effects may dominate any other factors.

Answer to Question 2

With the MABP there are not exchange rate changes so international reserve flows respond to changes in PF, Y, and D. With the MAER, there are no reserve flows so the exchange rate changes in response to changes in PF, Y, and D. Policy implications: BOP disequilibria are monetary phenomena that are transitory and can be handled with domestic monetary policy; an increase in domestic income will improve domestic BOP if not offset by domestic credit increases.


viki

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Reply #2 on: Jun 30, 2018
Correct answers!


InfiniteSteez

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Reply #3 on: Jun 30, 2018
Great! Please up vote :D


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