Topic 5: Internal and external balance
Question 1
(i) An
economy is in internal balance but have a Current Account deficit Its IB
schedule is steeper than the EB schedule Explain in what situation you would
be able to restore external balance without disrupting internal balance
(ii) An
economy is in external balance but have an unemployment situation Its IB
schedule is steeper than the EB schedule Explain in what situation you would
be able to restore internal balance without disrupting external balance
(iii) Explain
why the external balance is upward sloping
Question 2
(i) An
economy is in internal balance but have a Current Account deficit Its IB
schedule is steeper than the EB schedule Explain in what situation you would
be able to restore external balance without disrupting internal balance
(ii) An
economy is in external balance but have an unemployment situation Its IB
schedule is steeper than the EB schedule Explain in what situation you would
be able to restore internal balance without disrupting external balance
(iii) According
to the Swan model, the order in which policy goals are pursued will determine
whether policy assignment is stabilising or destabilising Do you agree?
Question 3
(a) Assume
that Singapore is currently achieving internal balance, but experiencing a
trade surplus Also assume that Singapore faces a relatively elastic IB
schedule and a relative inelastic EB schedule Explain how and why an attempt
to restore external balance will disrupt internal balance and how internal
balance would be restored
(b) Assume
that Malaysia is currently achieving internal balance, but experiencing a trade
deficit Also assume that Malaysia faces a relatively inelastic IB schedule and
a relatively elastic EB schedule Explain how and why an attempt to restore
external balance will disrupt internal balance and how internal balance would
be restored
?
Topic 6: IS-LM-BP
Question 1
Using the ISLMBP model, explain the following situation:
(a) Explain
the effects that a decrease in taxes has for the domestic economy with zero
capital mobility under a fixed and a flexible exchange rate system
(b) Explain
the effects that an increase in money supply has for the domestic economy with
perfect capital mobility under a fixed and a flexible exchange rate system
Question 2
Using the ISLMBP model, explain the following situation:
(i) Assume
zero capital mobility; explain the effects that an increase in government
expenditure has for the domestic economy under a fixed and a flexible exchange
rate system
(ii) Assume
perfect capital mobility; explain the effects that an increase in money supply
has for the domestic economy under a fixed and a flexible exchange rate system
Question 3
(i) Assume
that Singapore is currently achieving internal balance, but experiencing a
trade surplus Also assume that Singapore faces a relatively elastic IB
schedule and a relative inelastic EB schedule Explain how and why an attempt
to restore external balance will disrupt internal balance and how internal
balance would be restored
(ii) Assume that
Malaysia is currently achieving internal balance, but experiencing a trade
deficit Also assume that Malaysia faces a relatively inelastic IB schedule and
a relatively elastic EB schedule Explain how and why an attempt to restore
external balance will disrupt internal balance and how internal balance would
be restored