Case II: The Euro Debt Crisis and Switzerland Economy Switzerland has many envious economic data. It has low unemployment, low inflation, low government borrowing (budget surplus in 2010). Its total national debt is a mere 38% of GDP. It has one of the highest GDP per capita in the world $42,600 (2010 est.). On the other hand, Switzerland is a landlocked country and virtually no mineral resources. It relies heavily on international trade and also migrants to fill job vacancies in manufacturing. It specializes in high- tech micro-technology products in chemicals and electronics. This reliance on the international trade means the value of the currency is very importing for determining domestic demand, growth and unemployment. The Euro debt crisis has left many international investors looking for a 'safe haven' - a currency which gives a solid investment. Since the Swiss economy has avoided many of the problems in other Euro countries, it is one of the few countries which looks to be offering a safe investment. Questions i. As Switzerland continued to be one of the 'safe haven' countries for international investors, analyze and discuss the effects on Switzerland's economy mainly on its trade balance, exchange rate, NCO, domestic interest rate, domestic investment and savings (Hint: use the markets for loanable funds and the markets for foreign currency exchange approaches as discussed in class). ii. The citizens of Switzerland like to travel abroad. How will this change in the economy affect them? 111. Use the AD-AS model to determine the effects to real GDP, unemployment, and the price level in Switzerland in both the short run and the long run. Assume the economy was in long-run equilibrium before this change and consider only this stated change. iv. What kind of fiscal and monetary policy would be recommended to return back the exchange rate at its previous level? (Please analyze the effects of each recommended monetary and fiscal policies using the market for loanable funds, NCO and the market for foreign currency exchange).

Case II: The Euro Debt Crisis and Switzerland Economy Switzerland has many envious economic data. It has low unemployment, low inflation, low government borrowing (budget surplus in 2010). Its total national debt is a mere 38% of GDP. It has one of the highest GDP per capita in the world $42,600 (2010 est.). On the other hand, Switzerland is a landlocked country and virtually no mineral resources. It relies heavily on international trade and also migrants to fill job vacancies in manufacturing. It specializes in high- tech micro-technology products in chemicals and electronics. This reliance on the international trade means the value of the currency is very importing for determining domestic demand, growth and unemployment. The Euro debt crisis has left many international investors looking for a 'safe haven' - a currency which gives a solid investment. Since the Swiss economy has avoided many of the problems in other Euro countries, it is one of the few countries which looks to be offering a safe investment. Questions i. As Switzerland continued to be one of the 'safe haven' countries for international investors, analyze and discuss the effects on Switzerland's economy mainly on its trade balance, exchange rate, NCO, domestic interest rate, domestic investment and savings (Hint: use the markets for loanable funds and the markets for foreign currency exchange approaches as discussed in class). ii. The citizens of Switzerland like to travel abroad. How will this change in the economy affect them? 111. Use the AD-AS model to determine the effects to real GDP, unemployment, and the price level in Switzerland in both the short run and the long run. Assume the economy was in long-run equilibrium before this change and consider only this stated change. iv. What kind of fiscal and monetary policy would be recommended to return back the exchange rate at its previous level? (Please analyze the effects of each recommended monetary and fiscal policies using the market for loanable funds, NCO and the market for foreign currency exchange).

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 6SCQ: A booming economy can attract financial capital inflows, which promote further growth. However,...

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