1. A firm is planning to invest in setting up a new manufacturing facility in an emerging economy. It aims to use some of its existing highly skilled workforce to help in the setting up of the new facility. Examine some of the challenges that the firm might typically face in executing its plans.

2. In order to be able to get permission to obtain a licence to do business in an emerging economy, senior managers have been left in no doubt that a private payment to local administrative officials will be necessary. The opportunity to do business in this country is seen as being essential to the survival of the business in the medium term and to the security of 2000 jobs in the home country. How should the senior managers handle this situation? Explain your answer.

3. Consider two countries that trade heavily with one another - Corn Sylvania and Techoland. The national currency of Cornsylvania is the cob, while the Techoland national currency is the byte. The output of Corn Sylvania is mainly agricultural, while the output of Techoland is mainly high-technology electronic goods. Suppose that each economy is in a longrun macroeconomic equilibrium. a. Use diagrams to illustrate the state of each economy. Be sure to show aggregate demand, short-run aggregate supply and long-run aggregate supply. b. Now suppose that there is an increase in demand for electronic goods in both countries, and a simultaneous decline in demand for agricultural goods. Use your diagrams to show what happens to output and the price level in the short run in each country. What happens to the unemployment rate in each country? c. Show, using your diagrams, how each country could use monetary policy to reduce the short-run fluctuation in output. d. Show, using your diagrams, how movements in the cob- byte exchange rate could reduce short-run fluctuations in output in each country.

4. Suppose Techoland and Cornsylvania form a currency union and adopt the electrocarrot as their common currency. Now suppose again that there is an increase in demand for electronic goods in both countries, and a simultaneous decline in demand for agricultural goods. As president of the central bank for the currency union, would you raise or lower the electrocarrot interest rate, or keep it the same? Explain. (Hint: you are charged with maintaining low and stable inflation across the electro carrot area.)

5. Suppose that Techoland and Corn Sylvania decide to engage in fiscal federalism and adopt a common fiscal budget. a. Show, again using aggregate demand/aggregate supply diagrams, how fiscal policy can be used to alleviate the Chapter 21 The Global Economy 541H_case_SUMMARY short-run fluctuations generated by the asymmetric demand shock. b. Given the typical lags in the implementation of fiscal policy, would you advise the use of federal fiscal policy to alleviate short-run macroeconomic fluctuations?

6. The United States can be thought of as a non-trivial currency union since, although it is a single country, it encompasses many states that have economies comparable in size to those of some European countries. Given that the USA has had a single currency for 200 years, it may be thought of as a successful currency union. Yet many of the American states produce very different products and services, so that they are likely to be impacted by different kinds of macroeconomic shocks (expansionary and recessionary) over time. For example, Texas produces oil, while Kansas produces agricultural goods. How do you explain the long-term success of the US currency union given this diversity? Are there any lessons or predictions for Europe that can be drawn from the US experience?

7. Explain, giving reasons, whether the following statements are true or false. a. 'A high degree of trade among a group of countries implies that there would be benefits from them adopting a common currency and forming a currency union.' b. 'A high degree of trade among a group of countries implies that they should definitely adopt a common currency and form a currency union.'

8. Do you think that the free-rider problem associated with national fiscal polices in a currency union, as we discussed in the text, is likely to be a problem in actual practice? Justify your answer.

9. Put yourself in the position of a European finance minister in March 2012 negotiating with your fellow ministers on the sovereign debt crisis. To what extent do you think the setting up of the EFSF and the Fiscal Compact will solve the sovereign debt crisis? (Your answer to this question may be helped with the benefit of hindsight!)

10. A firm closes its call center operations in Belgium with the loss of 3000 jobs which has a significant impact on the local economy where the call center was located. It outsources the operation to Malaysia and its press release says that it will reduce costs as a result by 1 million a year. After the first six months the firm begins to receive complaints from customers that they are not happy with the level of service which they receive from the new call center operation. What should the firm do in this situation? (Hint - you might want to consider as part of your answer why customers use the call center in the first place.)