Economics Assignment: Macroeconomic Development Wing Thye Woo

Question 1: Effective Rate of Protection

Assume that country Pacifico is an open economy and the world price of cars is $10. The domestic demand for cars in Pacifico is Q=90-P, and the domestic supply curve of cars in Pacifico is Q=2P. Assume that the government of Pacifico would like to increase the production of cars by domestic producers. In order to support this goal, the government of Pacifico imposes an import tariff of $10/car for imported cars.

1. What is the market equilibrium for cars in Pacifico before the government impose the import tariff? (How many cars were demanded by Pacifico residents, how many cars were supplied by domestic producers, how many cars were imported?)

2. What is the effect of the import tariff?

Question 2: Sachs, "The Age of Sustainable Development"

In "The Age of Sustainable Development", Sachs explains that approximately 3⁄4 of world's poor live in 2 regions.

1. Which regions are they?
2. What are the specific characteristics of each of these two regions that contribute to their
3. high poverty rates?
4. What are Sachs's suggestions on strategies to eradicate (or at least alleviate) poverty in
5. each of these two regions?

Question 3: Sachs, "The Age of Sustainable Development"

1. In Chapter 9 of "The Age of Sustainable Development", Sachs explains two general interventions that we can do to stop the vicious spiral of disease and poverty and turn it into the virtuous spiral of health and wealth. What are these two interventions?

2. Sachs also explains the role of building local infrastructure as investment in public health. Please give 2 examples of local infrastructure and explain how they matter as investment in public health.

Question 4: Woo, "The Art of Economic Development"

1. Please give a brief explanation of "the theory of the second best".

2. Give a brief explanation on Baran-Frank hypothesis which is also known as dependency

3. theory

4. In the article, it is mentioned that competitive Real Exchange Rate (RER) management by

5. East Asia may have been more important than Effective Rate Protection (ERP) in favoring the production of tradeables. Please explain the mechanism of how outward-oriented strategy through (microeconomic) policies through tariff or export subsidies can be neutralized by inflationary (macroeconomic) policies in a fixed Nominal Exchange Rate setting.