In this Assignment, you will compare and contrast the various forms of the Exchange Rate Regimes and their impacts on an economy. You will also discuss the effects of international trade on the U.S. real GDP by evaluating scenarios that will examine the impacts of net exports on the U.S. economy and the components of the GDP.
Instructions: This Assignment requires a combination of short paragraph answers, computations, and completion of a 450–500 word essay. Answer all of the following questions in this document. You are required to follow proper APA format. Read the Criteria section below for more information before you begin this Assignment.
In this Assignment, you will be assessed on the following outcome:
MT445-6: Evaluate the effects of globalization and international trade on the U.S. economy.
Exchange rates can be understood as the price of one currency in terms of another currency. They affect the macroeconomic performances of countries since the exchanges have impact on international trade and flows of international investment. Exchange rate regimes (systems) are the frame under which the price of the exchange rate is determined. There are several types of exchange rate systems. Based on this background, thoroughly respond to the following questions.
1. Explain how exchange rates are determined under the fixed exchange rate system. Then, thoroughly discuss the advantages and disadvantages of the fixed exchange rate system.
2. Explain how exchange rates are determined under a floating exchange rate system. Then, thoroughly discuss the advantages and disadvantages of each system.
3. Explain how exchange rates are determined under a pegged exchange rate system. Then thoroughly discuss the advantages and disadvantages of a pegged exchange rate system.
4. In an open economy, trade is allowed between countries. Assume a consumer purchases $1,000 worth of furniture manufactured in China. Answer the following:
a. Which component(s) of GDP are impacted by this purchase?
b. Does GDP increase, decrease or stay the same? Briefly explain.
c. Does your answer change if the company in China is a U.S. owned company? Why?
5. Answer the following in a 450–500 word essay.
Globalization has impacts on the performance of the economies of countries due to various reasons. Consider the case of international trade. It has been argued that the gains from trade are based on comparative advantages, which reflect the relative opportunity costs of production. When countries specialize in producing goods and services for which they have comparative advantages, total production in the global economy rises. Trade advocates argue that this increase in the size of the economic pie can be used to make all trading countries better off through international trade. Economists also use the principle of comparative advantage to advocate free trade among countries as a better policy.
There is also an issue of trade balance. A balance of trade is the difference between the monetary value of exports and imports of a country. Trade balance can be positive (favorable) when the value of exports is greater than the value of imports. The positive trade balance is also called trade surplus. On the contrary, if the value of imports is greater than the value of exports, the trade balance indicates trade deficit (negative net export).
Based on the above summary and the detailed descriptions of the international trade issues in the textbook, thoroughly discuss the following questions.
a. Does free trade contribute to the improvement of economic well-being in the U.S. economy? How does trade stimulate long-term economic growth? Explain. How do the gains compare to the losses? Explain using examples. What is the impact of free trade on domestic job creation policy? Elaborate with examples.
b. Do you think the U.S. exports and imports of goods and services are based on the principle of comparative advantage of trade? Explain. Why do countries impose trade restrictions on goods and services they import from other countries? What are the pros and cons of trade protectionism like tariffs on the U.S. economy?
c. What are the impacts of currency devaluation and revaluation on the international trade? What is currency (exchange rate) war? How does it affect trade between countries? What are the impacts of currency manipulations on the U.S. trade?
References (add references in APA format in the space below)
• This Assignment should be completed in this Word document.
• It should be written in Standard English and demonstrate exceptional content, organization, style, and grammar and mechanics.
• Respond to the questions in a thorough manner, providing specific examples where asked.
• Your sources and content should follow proper APA format (A title page is not required). Review the APA formats found in the Writing Resources accessed through the Academic Success Center within the Academic Tools area of the course.
• Review the grading Rubric to ensure all points have been captured in the paper.
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