Section A (report in Microsoft word)Question 1

USA is a large importer of steel from China, South Korea, India and other Eastern European countries. In order to save its ailing domestic steel industry, the USA Department of Commerce has decided to impose import tariffs for imported steel into USA.

(a) Assume that the demand for steel in USA is given by the equation P = 900 – 0.5Q and the supply of steel is given by the equation P = 300 + 0.5Q. Solve for the pre-trade equilibrium price and quantity in USA steel market. Explain and analyse the consumer surplus and producer surplus in USA steel market with a proper diagram. (5 marks)

(b) At world price and free trade, USA is able to sell its steel at $500 per ton in the domestic market. Summarise and analyse the quantity of steel produced, consumed and imported in USA. Explain and analyse the welfare gain from trade in USA. Show your answers of the steel market with a proper diagram. (5 marks)

(c) Assume that USA imposes a tariff of $100 per tonne of steel imported into USA. Explain and analyse the quantity of steel produced, consumed and imported in USA steel market after the tariff. Foreign steel exporters to USA have to absorb a 20% of the tariff amount since USA is a large importer that will influence the market price. Show your answers of the steel market with a proper diagram. (5 marks)

(d) Explain and analyse the effects of the consumer surplus, producer surplus and deadweight loss in the USA steel market with the tariff. What are the terms of trade of the USA steel market after the tariff was imposed? (5 marks)

** guide to answer

Question 2

"The establishment of the ASEAN Economic Community (AEC) in 2015 is a major milestone in the regional economic integration agenda in ASEAN, offering opportunities in the form of a huge market of US$2.6 trillion and over 622 million people. In 2014, AEC was collectively the third largest economy in Asia and the seventh largest in the world.

The AEC Blueprint 2025 is aimed towards achieving the vision of having an AEC by 2025 that is highly integrated and cohesive; competitive, innovative and dynamic; with enhanced connectivity and sectoral cooperation; and a more resilient, inclusive, and people-oriented, people-centred community, integrated with the global economy.

Source: www.asean.org

ASEAN country members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

(a) Discuss how it is possible that each member country could benefit from this regional economic cooperation through trade. (10 marks)

**(to talk about type of benefit: dynamic benefits and static benefits. Also, trade creation and

trade division.) example of the diagram. (tariff effect)

(b) Would you agree that it’s more possible to have negative effects of the partnership to the member countries like Myanmar and Laos than the positive benefits? Discuss. (5 marks)

**(for Singapore to compare with others) Myanmar and Laos are less developed while the rest are more developed. Talk about the trade effect. With this comparative environment is the government able to deal with it.

Question 3

Examine the open economy of country Beta without the government sector. The aggregate spending with the various components is as follows:

C = 5,400 + 0.8Y M = 1,800 + 0.075Y I = 2,400 X = 1,700 Note: C = consumption, Y = national income, M = import, I = investment and X = export.

(a) Calculate the trade balance and the savings at the equilibrium level of national income. (5 marks)

** (please show the working) (need the saving function)

(b) Suppose export decreases by 200 and investment increases by 400 at the same time. Compare, compute and discuss the new equilibrium level of national income and the new trade balance at this equilibrium level of national income. (5 marks)

**(compare with A answer, then compute, after which discuss, overall there must be change in export income, import also affected by it)

Question 4

(a) Country Alpha has a fixed exchange rate system and free capital mobility. Due to an economic recession and a trade deficit, it is pursuing an expansionary fiscal policy to improve the country’s balance of payments. Illustrate and discuss if this expansionary fiscal policy is effective to achieve the country’s economic growth and balance of payments. (10 marks)

**(fixed exchange rate) drew diagram what’s happening in Singapore currency. Central bank use SGD to trade.

Fixed exchange rate Floating exchange rateFiscal policy Effective IneffectiveMonetary policy Ineffective Effective

Skeleton of the answer

(b) Country Sigma is an open economy with a flexible exchange rate and it pursues a contractionary monetary policy which will lead to lower real income and price level. Explain how this is possible. (10 marks)

**(floating exchange rate) drew diagram Central bank does not do anything.

Fixed exchange rate Floating exchange rate

Fiscal policy Effective IneffectiveMonetary policy Ineffective Effective

Skeleton of the answer

strictly follow APA formatting and style guidelines1, in particular for: • in-text citations and end-of-report references; • the identification of figures and tables;

Word limit of 3500 words. Clear, concise and precise answers preferred.

Section B (PowerPoint slide)Prepare a set of PowerPoint presentation for question 4.(10 marks)

The maximum number of slides is fifteen (15).