Author Question: With fixed exchange rates, a country A) cannot conduct independent monetary policy. B) can ... (Read 86 times)

jCorn1234 · **on:** Jun 30, 2018

With fixed exchange rates, a country

A) cannot conduct independent monetary policy.
B) can conduct independent monetary policy.
C) cannot conduct independent fiscal policy.
D) Both A and C.

Question 2

Describe the technology transfer benefit of capital flows and the political power cost of large capital flows into low-income countries.

What will be an ideal response?

bigcheese9 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A

Answer to Question 2

Benefits include new technologies, new management techniques, and new ideas. Developing countries often lack access to these without outside help. If it comes as direct investment, it has the further benefit of not coming from debt and requiring interest payments from scarce national resources. The Odious Debt situation pointed out that among the lowest income countries, corruption and lack of freedom have been a problem in the debt crisis. Similar problems could result from non-debt capital inflows (although tax payers may not be left with the same kinds of IOUs with interest). Large inflows of capital give access to power that may be exploited on the side of those doing the investing (their gain as opposed to the host nation's) or by those with political power in the nation receiving it (the interests of the people in power as opposed to the nation's interests). Large bribes for favorable legal treatment, for example, may be in the interests of the policy makers and the firms, but not the people.