Question 1

Debt service payments appear in

Accepted Answer

Debt service payments represent a transfer of income from one country to another and are recorded in the current account of the balance of payments. This account measures the flow of goods, services, and income between countries over a certain period of time. Other items in the current account include exports, imports, and income from investments. Therefore, option A is the best choice.

Question 2

Explain how international trade and trade policy helped South Korea transform itself from an underdeveloped country to a high-income country in the space of a single generation.You might begin by discussing South Korea's trade strategy.Why is international trade of such vital importance to South Korea?

Accepted Answer

South Korea's transformation from an underdeveloped country to a high-income country in just one generation can be attributed to its strategic trade policies and active participation in international trade.

South Korea's trade strategy focused on export-led growth, which involved promoting and supporting its export-oriented industries. The government provided incentives and subsidies to these industries, as well as invested in infrastructure and education to develop a skilled workforce. This strategy allowed South Korea to specialize in the production of certain goods and services, and to become competitive in the global market.

International trade was of vital importance to South Korea for several reasons. Firstly, it provided access to larger markets, allowing South Korean companies to sell their products and services to a global customer base. This increased demand for South Korean goods and services, leading to economic growth and job creation.

Secondly, international trade allowed South Korea to import raw materials and technology that were not available domestically, which helped to fuel its industrialization and economic development.

Additionally, international trade facilitated the transfer of knowledge and technology, as South Korean companies were able to learn from their international counterparts and improve their production processes and products.

Furthermore, international trade allowed South Korea to diversify its economy and reduce its dependence on a few industries, making it more resilient to economic shocks.

In conclusion, South Korea's active participation in international trade and its strategic trade policies were instrumental in its rapid transformation from an underdeveloped country to a high-income country. By leveraging international trade, South Korea was able to drive economic growth, industrialization, and technological advancement, ultimately achieving remarkable development in just one generation.

Question 3

Discuss some of the reasons why economists are concerned about the current recovery from the global financial crisis.

Accepted Answer

Large trade deficit.Large fiscal deficits in most OECD countries,market perception that risk of sovereign debt default is high,and risk of deflation all contribute to a cautious outlook for the future.

Question 4

Consider debt-equity swaps as an approach to debt reduction.Briefly describe how this works.State two arguments in favor of significant reliance on this strategy and two arguments against.

Accepted Answer

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Question 5

How did the Mexican debt crisis of the early 1980s come about? How has the Mexican economy coped during the past 20 years,in the aftermath of the debt crisis? What has been the legacy of the debt crisis for the Mexican economy?

Accepted Answer

The answer of How did the Mexican debt crisis of...

Question 6

What economic variables would you need to consider in order to distinguish between a developing country with a short-term balance of payments problem and one in a debt crisis? Explain what data you would need to look at and why.

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Question 7

Outline the principal sources of the debt crisis.

Accepted Answer

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Question 8

Explain how the devaluation of a developing country's currency is supposed to reduce its external debt.Give two reasons why a devaluation may be less effective than expected.

Accepted Answer

The answer of Explain how the devaluation of a developing...

Question 9

The flow of private foreign investment and grants and loans is included in a country's

Accepted Answer

Private foreign investment and grants and loans are recorded in a country's capital account, which tracks the flow of capital into and out of the country. The current account records a country's trade in goods and services, while the cash account records the flow of physical currency.

Question 10

An IMF official was quoted as acknowledging that the Fund's stabilization packages have often led to adjustment without growth.However,he said,"the Fund is a firefighter not a carpenter,and you cannot expect the firefighter to rebuild the house as well as put out the fire." Provide a balanced evaluation of this statement.

Accepted Answer

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Question 11

What is meant by the term Odious Debt"?

Accepted Answer

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Question 12

The need for exchange controls may arise from

Accepted Answer

Exchange controls may be needed when exchange rates are overvalued because this can lead to an unsustainable situation where a country's exports become more expensive and imports become cheaper, resulting in a large current account deficit. Exchange controls can be used to limit the amount of foreign currency that can be purchased, thus reducing the demand for the domestic currency and weakening the exchange rate.

B) Export promotion policies may actually require a more flexible exchange rate to help boost exports so exchange controls are not typically needed for this reason.

C) A current account surplus may not necessarily require exchange controls as it suggests that the country is exporting more than it is importing, resulting in a net inflow of foreign currency which can help support the domestic currency.

Question 13

Outline the elements of an IMF stabilization package.Explain the mechanism by which it is expected to help a balance of payments deficit.How successful have these packages been? Explain your answer.

Accepted Answer

The answer of Outline the elements of an IMF stabilization...

Question 14

Provide a definition of the current account,the capital account,and the cash account.What isthe relationship between the three accounts?

Accepted Answer

The answer of Provide a definition of the current account,the...

Question 15

Discuss the options for financing a balance of payments deficit.

Accepted Answer

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Question 16

Which of the following was not a factor contributing to the debt crisis in Latin America?

Accepted Answer

Trade liberalization in many developing countries is generally not considered a contributing factor to the debt crisis in Latin America. The crisis was more directly related to factors such as oil shocks, increases in global interest rates, and a lack of investment opportunities in developed countries, which led to excessive borrowing and spending by Latin American countries.

Question 17

Why may the debt crisis be only "sleeping" rather than "dead?"

Accepted Answer

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Question 18

A typical IMF stabilization package involves

Accepted Answer

The IMF generally advocates for exchange control liberalization as a way of promoting international economic integration and growth. The other options listed are not typically part of an IMF stabilization package.

Question 19

Consider the following hypothetical data for a developing country: $\begin{array}{ccccc}
\text { Year } & \text { Total Debt (\$ bn) } & \text { Debt/Export (\%) } & \text { GDP Growth } & \text { Inv. Growth } \
\hline 1 & 6 & 134 & 0.6 \% & -1.0 \% \
2 & 6.5 & 147 & 2.9 \% & 1.1 \% \
3 & 7 & 159 & 5.1 \% & 1.6 \% \
4 & 7.5 & 174 & 6.4 \% & 2.4 \% \
5 & 8 & 198 & 1.1 \% & -0.6 \% \
\hline
\end{array}$ Does this country have a debt crisis? What additional pieces of quantitative or qualitative evidence(if any)would help you to decide?

Accepted Answer

The answer of Consider the following hypothetical data for a...

Question 20

Explain what is meant by capital flight.How would you distinguish capital flight from the normal desire of investors to diversify their portfolios by investing abroad?

Accepted Answer

The answer of Explain what is meant by capital flight.How...

Quiz 13: Balance of Payments,debt,financial Crises,and Stabilization Policies