You are graduate employee at an International economics think tank called the "Melba" institute and you have been asked to provide some comparative research relating to the findings presented in the article above.

Specifically, you have been asked tocompare the impact of Covid on the Microeconomy on both a large economy and a smaller developing economy (this country is not limited to those listed in the article but would need to be a smaller economy that trades with one of the large economies such as the US or China).

You are also asked to examine themicroeconomic interdependencies between the large, developed economy and their smaller trading partner. From your findings what can you deduce about inequality in economic recovery as we move to the second part of 2021

Concepts listed below can be used for comparison,

Current economic context of both countries: What has been GDP growth / unemployment / inflation in recent quarters? What are the major policy concerns for both economies.

• Balance of payments
• What does the balance of payments indicate about the economies net wealth - what have been recent changes or trends in the balance of payments in the respective economies and what are the key drivers of that change.
• What does this imply about the countries approach to trading consumption across time - historically have they been net lenders / net borrowers
• Has COVID resulted in any major changes in Balance of Trade / the CA / the financial account - (magnitude of change in both economies)
• What can you deduce about both economies from the balance of payments data

Exchange Rate determination - identify and contextualize what drives the value of the country's currency

• Have there been recent changes in the value of the domestic currency and what might be driving this - link to the theories of exchange rate determination eg inflation, interest rates, Big Mac index PPP
• Identify any major shifts in fiscal or monetary policy - how might this impact on the value of the currency
• What is the role of the respective central banks? Is the exchange rate managed? Is there discussions around a Central Bank Digital currency? How might this impact on the exchange rate
• Are there concerns around capital flows?
• If the exchange rate is flexible how volatile have fluctuations been
• How sensitive is the economy to changes in the exchange rate?
• How might a change in the exchange rate impact of the trade balance.
• How might a chance in the RER come about (change in e or relative prices)
• Estimate which quadrant of the SWAN diagram your country of choice may be operating in?
• What might that predict about the role for policymakers - what should be the policy focus - internal and external balance

IS LM BP model applications

• Impact of Expansionary fiscal or monetary policy
• Changes in relative interest rates
• The effect of Covid - (external shock and the adjustment mechanisms)
• Map the Microeconomic interdependencies and spillover effects of policy changes in the large economy
• How exposed are the economies to to external shocks
• How exposed are the economies to internal shocks
• Is there fear of currency crisis - credibility concerns relating to the domestic currency.

q2

Suppose a monopoly sells to two identifiably different types of customers, A and B, who are unable to practice arbitrage. The inverse demand curve for group A is PA = 20 - QA, and the inverse demand curve for group B is PB = 13 - QB. The monopolist is able to produce the good for either type of customer at a constant marginal cost of 5, and the monopolist has no fixed costs. If the monopolist is able to practice group price discrimination, what would be the values of the elasticities of the two groups at the profit maximizing prices?

q3

Show the tables and diagrams for these set of questions. Cite your references. Detailed explanations only...