Question 1

(a) Discuss with an appropriate diagram how a tariff imposed on imported goods by a large nation could lead to better national welfare.

(b) Due to its large trade deficits over the decade with China, former U.S. President Donald Trump declared a trade war against China by imposing tariffs and non-tariff regulations and was greeted with retaliation. Analyze whether both countries engaged in the trade war have affected their country’s welfare and if the U.S. has won the trade war.

Question 2

(a) Singapore is a manufacturing base for many Multinational Corporations (MNCs) from different parts of the world. Singapore is also highly dependent on its imports of many goods, in particular raw materials and intermediate goods for the production of final goods exported to the world market. Suppose the Singapore dollar appreciates against the U.S. dollar, explain how the profits of these MNCs in Singapore are affected.

(b) Explain the concept of absolute purchasing power parity (absolute PPP), and describe three (3) reasons why it fails to accurately reflect exchange-rate movements.

Question 3

Suppose country X is operating under a flexible exchange rate system and concurrently, is facing an economic recession and a balance of payment deficit with inflationary pressure. Illustrate the suitable policy mix to address these problems for Country X’s economy.