This question is based on the article, "Ecuador is in intensive care, and a straitjacket," published by The Economist on July 4, 2020. Article text is pasted in comments.

The article discusses the dilemmas and constraints of macroeconomic policies in Ecuador, where the US dollar has been adopted as legal tender since 2000 as a means of doing away with inflation, which was rampant when Ecuador had its own currency.

(a)The article points out that in 2020 Ecuador's economy was badly suffering from the COVID-19 pandemic, but unlike the situation in many other countries, the government and the central bank could not use expansionary macroeconomic policies to reduce the economic hardship caused by the pandemic. What were the sources of the constraints on expansionary macroeconomic policy? What role did the dollarization of the economy played in those constraints? Please explain your answer. [8]

Answer:

(b)According to the article, Ecuador enjoyed a natural resource boom during the government of Rafael Correa. Did the government of Ecuador follow an optimal fiscal policy at that time? What evidence in the article points to optimality or suboptimality of fiscal policy under the Correa administration? Please explain your answer. [8]

Answer:

(c)According to the article, why did Ecuador adopt the US dollar as its legal currency in 2000? What have been the benefits and costs of that adoption? Please, explain your answer. [10]

Answer:

(d)According to the article, did Ecuador attempt to reform its macroeconomic policies before the 2020 pandemic? If so, what were those reforms, what were their aims, and how did the government handle the process? What constraints did Ecuador's policymakers faced in reforming the country's macroeconomic policies at that time? Please, explain your answer. [10]

Answer: