Problems

equal to its purchasing power parity value when compared to a country with a low inflation rate? 27 . Suppose a country has an overall balance of trade so that exports of goods and services equal imports of goods and services. Does that imply that the country has balanced trade with each of its trading partners? 28 . We learned that changes in exchange rates and the corresponding changes in the balance of trade amplify monetary policy. From the perspective of a nation’s central bank, is this a good thing or a bad thing? 29 . If a developing country needs foreign capital inflows, management expertise, and technology, how can it encourage foreign investors while at the same time protect itself against capital flight and banking system collapse, as happened during the Asian financial crisis? 30 . Many developing countries, like Mexico, have moderate to high rates of inflation. At the same time, international trade plays an important role in their economies. What type of exchange rate regime would be best for such a country’s currency vis à vis the U.S. dollar? 31 . What would make a country decide to change from a common currency, like the euro, back to its own currency?

Problems

32 . A British pound cost $2.00 in U.S. dollars in 2008, but $1.27 in U.S. dollars in 2017. Was the pound weaker or stronger against the dollar? Did the dollar appreciate or depreciate versus the pound?

FIGURE 17.1Shut Downs and Parks Yellowstone National Park is one of the many national parks forced to close operations during the government shut down in 2013 and 2018–2019. (Credit: modification of “Close up of sign” by David Fulmer/Flickr Creative Commons, CC BY 2.0)

In this chapter, you will learn about:

• Government Spending
• Taxation
• Federal Deficits and the National Debt
• Using Fiscal Policy to Fight Recessions, Unemployment, and Inflation
• Automatic Stabilizers
• Practical Problems with Discretionary Fiscal Policy
• The Question of a Balanced Budget

BRING IT HOME No Yellowstone Park? You had trekked all the way to see Yellowstone National Park in the beautiful month of October 2013, only to find it… closed. Closed! Why? For two weeks in October 2013, the U.S. federal government shut down. Many federal services, like the national parks, closed and 800,000 federal employees were furloughed. Tourists were shocked and so was the rest of the world: Congress and the President could not agree on a budget. Inside the Capitol, Republicans and Democrats argued about spending priorities and whether to increase the national debt limit. Each year's budget, which is over