Review Questions

11. Use the demand-and-supply of foreign currency graph to determine what would happen to a small, open economy that experienced capital outflows.

12. What is the primary way in which economists measure standards of living? 13. What are some of the other ways of comparing the standard of living in countries around the world? 14. What are the four other factors that determine the economic standard of living around the world? 15. What other factors, aside from labor productivity, capital investment, and technology, impact the economic growth of a country? How? 16. What strategies did the East Asian Tigers employ to stimulate economic growth? 17. What are the two types of unemployment problems? 18. In low-income countries, does it make sense to argue that most of the people without long-term jobs are unemployed? 19. Is inflation likely to be a severe problem for at least some high-income economies in the near future? 20. Is inflation likely to be a problem for at least some low- and middle-income economies in the near future? 21. What are the major issues with regard to trade imbalances for the U.S. economy? 22. What are the major issues with regard to trade imbalances for low- and middle-income countries?

23. Demography can have important economic effects. The United States has an aging population. Explain one economic benefit and one economic cost of an aging population as well as of a population that is very young. 24. Explain why is it difficult to set aside funds for investment when you are in poverty. 25. Why do you think it is difficult for high-income countries to achieve high growth rates? 26. Is it possible to protect workers from losing their jobs without distorting the labor market? 27. Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/AS diagram, based on the Keynesian model, for what the nation hopes will happen. Then draw a second AD/AS diagram, based on the neoclassical model, for what is more likely to happen. 28. Why are inflationary dangers lower in the high-income economies than in low-income and middle- income economies? 29. Explain why converging economies may present a strong argument for limiting flows of capital but not for limiting trade.

30. Retrieve the following data from The World Bank database (http://databank.worldbank.org/data/ home.aspx) for India, Spain, and South Africa for the most recent year available: