Exam 2021 Flashcards
In class yer macroeconomic policy trilemma describes the constraints on economic policy mix under the country’s openness to globalisation.
1) Draw a diagram of Macro policy trilemma
2) Explain what policy constraints a small open economy faces according to the policy trilemma framework and why
3) Explain why we can interpret the policy constraints imposed by the trilemma as the benefit and not the cost of globalisation.
- 2.
3.
- Under what conditions the trilemma becomes a dilemma, as populated by the economist Helene Rey
- Explain the nature of the dilemma
1) In the Helene Rey work the trilemma becomes a dilemma, sh explains that with the globalisation and joining the international trade the countries have now only two options to choose from either Pegged-Exchange or Capital Mobility making it a dilemma. She states that the impact of globalisation from small economies have made them even more dependent on large economies and thus taken out the possibility of Monetary Autonomy policy.
2) The countries now choose between the Pegged-Exchange rate and Capital Mobility. These are the two possibilities to choose from, but it was mentioned that depending on the economic situation the countries switch between the two and do not stock with one.
In class we discussed that typically there is much more organised political opposition to TRADE GLOBALIZATION then to FINANCIAL GLOBALIZATION. Explain why.
Olson’s (1965) tied the difficulty of enacting policy reforms to a concentrated set of losers, each losing a great deal, and a dispersed set of winners, each winning a small amount.
1) With trade globalisation, losses are very concentrated: dying industries, offshoring of the jobs, etc. But gains are diffused: cheaper/varying for consumers.
2) The opposite is the case with financial globalisation. Losses are more dispersed (forgone tax revenues or a higher risk of crises), unless there is global crises, when government steps in. Gains are concentrated, influential and organised: financial industry.
