Some time there is no trade off between inflation and unemployment both in the short run and long

run. The traditional Phillips curve is not therefore applicable to this situation. The policy implication is

that it is not wise for the government to choose high unemployment in order to decrease inflation and

vice versa. If it chooses higher unemployment it may end up in higher inflation. What are the causes

for this relationship and what are the alternative solutions. Try to explain in detail with differ ent

evidence. (2 point)

Answer question a, b and cunder question number 2based on information written

hereunder

USA and China trade war

2.The pattern of trade between the USA and China has dramatically changed during the past

15 years. Until 1992, thecommodity trade volume between the two countries was around

$10 billion per year, but it grew to $60 billion in 1999. China had a trade deficit with the

USA in 1987, but it became a surplus in the mid-1990s and grew to about $100 billion in

2002. USA tradedeficit with China was $375 billion in 2017. The trade deficit exist USA exports to

China were only $130 billion while imports from China were $506 billion.From January 2018 to

July 2018, the United States exported a total of $74.3 billion value goods to China. During that same

timeframe, the USA imported $296.8 billion, according to the USA Census Bureau. As a result, the

total trade deficit of USA with China is $222.6 billion in 2018.

Derese G. (Assistant Professor)Page 2

According to USA policy maker to balance trade deficit between the two countries one of the

suggested solution is China shouldrevaluate their domestic currency or increasing the value

of exchange rate such as yuan to dollar.But China government not willing to accept the

suggestion given by USA policy maker. As a resultcurrently there is a great trade warbetween

the two countries. On April 3, 2018, the Trump administration announced to impose tariffs on

$50 billion in Chinese imported electronics, aerospace, and machineryand other imposition

continue until know. Chinaalso penalized two other U.S. exports: sorghum and Boeing

airplanes. In addition, China canceled all U.S. soybean import contracts.In this way the trade

war between the two countries continue until.

Based on information given in the above answer a, b and c:

a.What are the advantages USA get if China revaluate their currency. Explainbrieflybased on

all possiblemajor advantages.(2 point)

b.Why not China willing to revaluate their currency (yuan). What are the expected losses if

China accepts USA suggestion? (2 point)

c.Explain some of the possible impacts of a US-China trade war on developing country

economy(1 point)

3.This day, automatic teller machines are becoming widely available. How do you think this

affectedN*(number of trips consumer makes to the bankto withdraw money from

savings account)and money demand? Explainbased onBaumol-Tobin Model

assumptions. (2 point)