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What is the absorption approach to the balance of trade?




Question;1. What is the absorption approach to the balance of trade?2. Explain how unpleasant monetarist arithmetic can be less unpleasant if interest rates are near zero?3. How do sudden changes in exchange rates directly affect the balance of trade through the J curve?4. What is the key long run implication of purchasing power parity?5. Why is the purchasing power parity theory a dangerous way to determine the ?right exchange rate? or degree of exchange-rate misalignment, at any given time?6. If the Federal Reserve implements a lax, easy monetary policy, what will happen to the price of bonds and the bond rate of return in the short-term?8. What is the main reason for pressing for central bank independence from the fiscal authority?9. In a recent Economist, we see that China has a trade balance (surplus) of 2.0% of GDP but a fiscal deficit of 2.9% of GDP (a fiscal balance of -2.9% of GDP). What does this imply about the Saving-Investment balance of China relative to GDP?


Paper#48570 | Written in 18-Jul-2015

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