Read the case and answer the true or false questions and questions below based on you own understanding.

4G +.all .all 2:02 KB/3 0.10 86 KB/s [Template] Glob... . . . Economic Perspectives Learning Activity 1: Asia: Reducing Export Dependency and Increasing Domestic Demand Source: M. Ayhan Kose, E. Prasad, K. Rogoff, and S. Wei, "Beyond the Blame Game," Finance & The rapid economic advances witnessed by East Asian under control. Finally, countries' financial sectors- economies before the Asian financial crisis of 1997 banking and capital markets that are the heart of an were fueled largely by those countries' emphasis on economy-need to be adequately regulated and "export-led" growth. To an extent, the recent high- supervised to prevent the excessive risk taking that level growth of BRIC countries can also be attributed can lead to economic crisis. to merchandise exports from China, services exports Globalization has its merits, but it also requires from India, and raw material (minerals and crude oil) participants to play by the rules of the game and exports from Brazil and Russia. Yet, these countries avoid excessive risk taking, as it could send the global have also been reforming their large domestic economy into a tailspin." economies by making them more market oriented. As illustrated in the opening vignette, the 2008 TRUE/FALSE QUESTIONS: global financial crisis showed that countries that had 1) The Asian financial crisis of 1997 was the result pursued a policy of "export-led" growth could find of East Asian economies' excessive dependence difficulty sustaining rapid economic expansion during on export-led economic growth, so when periods of external shock. industrialized economies slowed, East Asian A few lessons, especially for developing countries, exports declined, and growth slowed that led to are becoming clear. First, with the ongoing decoupling the crisis. True or False? of the global economy, it seems imperative that 2) China and India have a large growing middle- export-oriented nations diversify their markets to include major emerging economies like BRICs. Second, income class with strong appetites for thi consumption of domestic goods and services as countries emphasizing exports should base their well as of imports. True or False? strategy on their true competitive advantages and not subsidize the export sector directly or indirectly 3) The 2008 financial crisis had a negative impact on (such as keeping their currency weak). Governments Brazil, China, and India because those countries that maintain a weak currency policy not only unfairly had diversified their export destinations . subsidize exports but they also tax imports, thereby large domestic markets. True or False? contributing to domestic inflation and worsening consumer welfare in the exporting nation. Third, 4) Countries that try to keep their currencies weak for countries with large populations, the size of the may increase exports in the short run but at the domestic market (especially the size and growth of expense of high import costs that could lead to that country's middle class) remains most important. rising inflation. True or False? Large domestic populations act as a built-in stabilizer during periods of external downturns. As recent events have shown, the economies of China, India, and QUESTIONS: Indonesia performed well despite the global financial 1) How should countries diversify from a purely crisis. Fourth, overindulgence (living on credit) can "export-led" growth strategy? lead to disaster. Consumers need to live within their 2) What are some of the major lessons learned by means, corporations should not be over-leveraged, countries to better prepare them for the next and governments must keep their budget deficits global economic crisis