Question & Answer

Why does this argument make GNY a better indicator of development than GDP? (See the Appendix to Chapter 15.)

1. What effect will trade have on the price of capital in developing and developed countries?

2. It is sometimes claimed that trade with developing countries is unjust because it leads to the importation of goods produced at pitifully low wages. How can the Heckscher–Ohlin theory be used to refute this claim? Is there any validity in the claim? (see Box 24.3)

How would a redistribution of income to the powerful be likely to affect GNY?

Would it be possible with this basic needs approach to say (a) that one country was more developed than another; (b) that one country was developing faster than another?

What other items might be included as basic needs?

By what means would a depressed country in an economic union with a single currency be able to recover? Would the market provide a satisfactory solution to its problems or would (union) government intervention be necessary, and if so, what form could that intervention take?

How might multiplier effects (the principle of cumulative causation) lead to prosperous regions becoming more prosperous and less prosperous regions falling even further behind?

If total convergence were achieved, would harmonisation of policies follow automatically?

Referring to Table 26.1, in what respects was there greater convergence between these countries from the 2010s than previously?

Give some examples of beggar-my-neighbour policies.

What will be the effect on the UK economy if the European Central Bank cuts interest rates?

Are exports likely to continue growing faster than GDP indefinitely? What will determine the outcome?

Assume that the US economy expands. What will determine the size of the multiplier effect on other countries?

What will determine the size of the shift in the BP curve in each case?

Under what circumstances would an expansionary fiscal policy have no effect at all on national income?

1. Why does this conclusion remain the same if the BP curve is steeper than the LM curve?

2. Trace through the effects of a fall in exports (thereby shifting the BP curve)

3. Show what will happen if there is (a) a rise in business confidence and a resulting increase in investment; (b) a rise in the demand for money balances (say for precautionary purposes).

What will be the effect of an expansionary fiscal policy on interest rates and national income if there is a perfectly elastic supply of international finance?

Would any of these problems be lessened by the world returning to an adjustable peg system? If so, what sort of adjustable peg system would you recommend?

Why would the adjustable peg system have been less suitable in the world of the mid-1970s than it was back in the 1950s?

Would this uncertainty have a similar or a different effect on exporting companies and companies using imported inputs?

Under this system how would you expect countries to respond to a balance of payments surplus? Would a revaluation benefit such countries?

Why would banks not be prepared to offer a forward exchange rate to a firm for, say, five years’ time?

If speculators on average gain from their speculation, who loses?

Draw a similar diagram to Figure 25.9 showing how an appreciation of the exchange rate would similarly be reduced by stabilising speculation.

Describe the exchange-rate path if there were a single shock that caused interest rates to fall. What determines the magnitude and speed of changes in the exchange rate in such a scenario?