Macroeconomic Effects of Exchange Rates

Critical Thinking Questions

Suppose a country has an overall balance of trade so that exports of goods and services equal imports of goods and services. Does that imply that the country has balanced trade with each of its trading partners?

We learned that changes in exchange rates and the corresponding changes in the balance of trade amplify monetary policy. From the perspective of a nation’s central bank, is this a good thing or a bad thing?

If a developing country needs foreign capital inflows, management expertise, and technology, how can it encourage foreign investors while at the same time protect itself against capital flight and banking system collapse, as happened during the Asian financial crisis?