International finance/ macroeconomics You have been appointed policy advisor of the country Economia. The country is an
Posted: Wed Mar 09, 2022 8:29 am
International finance/ macroeconomics
You have been appointed policy advisor of the
country Economia. The country is an open economy, has a
floating exchange rate regime and uses the Econ as its
currency. (with graphs)
4. (30 marks) Economia has historically had a
current account surplus. The pension system is not generous and its
ageing population has been saving an increasing amount for
retirement. The savings are used to purchase foreign bonds, which
are viewed as a safe and liquid asset
by Economia’s residents.
Use the appropriate model from class to show the effect of the
increase in saving on Economia’s current account and
the world real interest rate. (6 marks)
Use the appropriate model from class to show the effect of the
increase in saving on Economia’s exchange rate (𝐸𝐸𝑐𝑜𝑛/𝐹).
(6 marks)
Should the government be worried about the increase in saving?
Explain. (6 marks)
The government is considering three alternative policy responses
to reduce current account imbalances. Advise the government on
whether these policies would achieve that objective. (12 marks)
Policy 1 Increase public spending on infrastructure
Policy 2 Increase the generosity of the pension system Policy 3
Promote spending on housing by increasing the loan- to-value ratio
(LTV)
You have been appointed policy advisor of the
country Economia. The country is an open economy, has a
floating exchange rate regime and uses the Econ as its
currency. (with graphs)
4. (30 marks) Economia has historically had a
current account surplus. The pension system is not generous and its
ageing population has been saving an increasing amount for
retirement. The savings are used to purchase foreign bonds, which
are viewed as a safe and liquid asset
by Economia’s residents.
Use the appropriate model from class to show the effect of the
increase in saving on Economia’s current account and
the world real interest rate. (6 marks)
Use the appropriate model from class to show the effect of the
increase in saving on Economia’s exchange rate (𝐸𝐸𝑐𝑜𝑛/𝐹).
(6 marks)
Should the government be worried about the increase in saving?
Explain. (6 marks)
The government is considering three alternative policy responses
to reduce current account imbalances. Advise the government on
whether these policies would achieve that objective. (12 marks)
Policy 1 Increase public spending on infrastructure
Policy 2 Increase the generosity of the pension system Policy 3
Promote spending on housing by increasing the loan- to-value ratio
(LTV)