1.

The Republic of Argent does 50% of its trade with Eurasia and 50% with Oceania. Over the last three years, the currency has risen from 1 to 1.1 and then to 1.3 against the Oceania dollar. However, against the Eurasian euro it has fallen from 1 to 1/1.1 to 1/1.3. What is the effective exchange rate? If the Republic wishes to fix its exchange rate, what ex- change rate regime would you recommend?

2.

Suppose you had information on the impact of spending on public education on the productivity of the labor force. You also have information on how education spending re- duces crime. Finally, you have estimates of how raising extra taxes creates distortions to labor supply. Explain precisely how you would use this sort of information to help determine optimal spending on public education. What extra information would be valuable?

3.

Because future generations are likely to enjoy higher real incomes than the current generation, shouldn’t we aim to run up the stock of debt so that those most able to pay face the higher taxes?

4.

Does it make sense for there to be any limits on the ability of a democratically elected government to run fiscal deficits? Does the fact that future generations cannot vote have any bearing on this issue?

5.

Figure 19.9 shows the United States is a net debtor to other countries, yet Table 19.3 shows that its investment income position in the current account was nearly in balance. What might explain this?

30 25 20 15 10 5 0 -5 -10 -15 1970 15 10 5 0 -5 -10 -15- 1973 1976 1980 1982 1984 1979 U.K. 1982 1986 U.S. 1988 1985 1990 1988 1992 1991 1994 1994 1997 1996 25 20 15 10 5 35 30 25 20 15 10 5 1970 1970 1973 1976 1973 Germany 1976 1979 1979 1982 Japan 1982 1985 1988 1985 1988 1991 1991 1994 1997 1994 2661