Latin american and the global economic#1 Assignment

Latin american and the global economic#1 - Assignment Example During war, for instance, local wars, there are usually major causalities to the population while the government, on the other hand, fights hard to contain the situation. To do so, there is usually increased spending on both the government part and the citizens on basic commodities. This creates an increased demand into the economy with less supply. Thus for an open economy, there would be an influx of goods from a foreign market {Berman, Nicolas, Philippe and Thierry, 2012}. This will make the imports exceed exports hence creating unfavorable balance of trade. As a result, there will be current deficits that eventually will lower the value of the local currency. China has progressively growing technology and will be able to produce more units of television with time. More TV produced will make the sets to cheaper in the future. Production of vodka, on the other hand, will reduce significantly. Thus, china will have a comparative advantage over Russia {Berman, Nicolas, Philippe, and Thierry,2012}. Thus, Russia will have to spend more bottles of vodka if they are to acquire a single television set since the balance of trade does not favor them. China will also export more TVs to Russia than the number of bottles of vodka to them. Thus, this will make Yuan be of more value than the Russian currency. Rubbles would depreciate since the country would need more of it if they were to acquire Yuan to import TVs. i} when the fed lowers interest rates, commercial banks will be able to borrow more from the central bank. Thus, they will have excess credit to lend to the public. To attract more borrowers, they will have to charge low-interest rate. Thus, the interest rates will reduce in the market as a whole. Ii} lowering the interest rate will increase the amount of money into the economy. This will result in increased spending by the population leading to increased demand in the economy.