ECON30029: A Corollary Of The Policy Trilemma Is That To Have An Independent Monetary: International Macroeconomics, MU, Australia

University Melbourne University
Subject ECON30029: International Macroeconomics

Part A: Short Answer Questions. 

1. A corollary of the policy trilemma is that to have an independent monetary policy a country must have a floating exchange rate. This is consistent with evidence that suggests that world gross credit flows are strongly positively correlated and explained by United States monetary policy.

2.  The Ricardian Equivalence Hypothesis states that a temporary increase in government purchases should leave national savings unchanged.

3.  A country that runs sustained fiscal deficits, can always afford to do so but may have to abandon its nominal exchange rate peg.

4.  In a two-country model with perfect capital markets, a temporary increase in productivity in one country increases consumption in both countries.

5.  In a small open economy model in which the country’s interest rate on the international market depends on the amount of borrowing, capital controls will always be welfare improving.

6.  Froot and Frankel’s analysis using survey data on exchange rate forecasts concludes that future expectations of the nominal exchange rate move less than one-for-one with current exchange rates. Speculative trade is therefore stabilizing.

Are You Searching Answer of this Question? Request Australian Writers to Write a plagiarism Free Copy for You.

Part B: Long Answer Questions. 

1. Consider a two-period small open economy. Households are endowed with QT 1 unit of trades in period 1 and QT 2 units of tradable in period 2. The country interest rate is r1, the nominal exchange rate fixed and equal to 1 and the nominal wage rate is downwardly rigid and takes the known value W1 in period 1. Suppose the economy starts period 1 with no assets or debts carried over from the past.

(a)  Write down the households flow budget constraints in period 1 and period

2. Derive the intertemporal budget constraint.

(b)  Write down the Lagrangian for household maximization. Derive the first-order conditions that characterize optimal household decisions. Eliminate the Lagrange multiplier and interpret the three optimality conditions.

(c)  Write down and solve the profit maximization problem for nontradable firms in periods 1 and 2. Derive the supply curve for non-tradable goods. How does it depend on the level of nontradable goods technology?

(d)  Derive expressions for the equilibrium levels of consumption of tradables and the trade balance in periods 1 and 2.

(e)  Suppose initially that in period 1 the nominal wage and consumption demand is consistent with full employment. Derive expressions for the equilibrium relative price of non-tradables, tradable and nontradable consumption as a function of the real wage in units of the tradable goods, the real interest rate, the preference parameter and the level of technology A1.

(f) Plot the supply and demand of non-tradables in (p1,h1). Explain what factors lead to shifts in each curve.

Get Solution of this Assessment. Hire Experts to solve this assignment for you Before Deadline.

Get Help By Expert

We provide speedily assignment writing help on (ECON30029) International Macroeconomics assignments. If you feel the burden of economics assignments and essays then contact our expert assignment writers to get the best quality economics assignment help. By hiring us you get freshly written documents in simpler words that help you to get a better perspective on the subject matter of the assignment.

Online Exam & Assignment Writing Services

50000+ Orders Delivered

5 Star Rating

Confidential & Secure Assignment Help For

Assessment Answer

Online Exam

Case Study Answers

TAFE & VET Levels

Tutorial Solutions

Summative & Individual

GBA & Reflective

MCQ Quiz & Test Help

Check Recent Assessment Solution

CHCCCS015 Provide individualised support Assessment
CHC33015 Certificate III in Individual Support (Ageing) Advance College ASSESSMENT OVERVIEW This Student Assessment Booklet includes all your tasks for assessment of CHCCCS015 Provide individualized support. ABOUT YOUR ASSESSMENTS This…
BSBSMB201 Identify Suitability for Micro Business Assessment Answer
In Australia, the interest to pursue a management course has increased a lot among the students. Even students are migrating from other countries to pursue a management course. If you…


Instant Paper Writing Services by Native Australian Writers

Plagiarism Free Solutions
100% Original Work
24*7 Online Assistance
Native PhD Experts
Hire a Writer Now

Get help with Homework Assignments, Papers, and Projects