Economics and Finance Tasks 2022

Running head: ECONOMICS AND FINANCE
Economics and Finance
Name of the Student
Name of the University
Course ID

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Table of Contents
Task 1: Czech Republic imports and exports and exchange rate relationship................................2
Task 2: Czech Republic and Fiscal policy objectives.....................................................................5
Fiscal policy and main tools of fiscal policy...............................................................................5
Three main goals of fiscal policy for Czech Republic................................................................5
Types of fiscal policy...................................................................................................................6
Evaluation of different types of fiscal policy..............................................................................7
Impact of fiscal policy in Czech Republic on nation debt of Czech Republic............................9
Task 3: International trade and protectionism...............................................................................11
PPF for Germany and Bangladesh.............................................................................................11
Opportunity cost of Cars ad Cloth in Germany and Bangladesh...............................................13
Absolute advantage....................................................................................................................14
Gains from trade........................................................................................................................15
Economic, ethical and humanitarian impact of trade protectionism.........................................17
References......................................................................................................................................19

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Task 1: Czech Republic imports and exports and exchange rate relationship
In determination of export and import volume of a nation, exchange rate plays an
important role. Exchange rate expresses the value of one country’s currency in terms of currency
of another nation. Value of the nation’s currency determines the volume of export and import by
affecting price of imported and exported goods. When value of currency falls, this implies the
country has to pay a larger amount for every unit of foreign currency (Arize, Malindretos and
Igwe 2017). This is known as depreciation of currency. The depreciation of currency is good for
importer importing goods of the concerned nation as they now have to pay a relatively lesser
price. This benefits the exporters by boosting their export demand. This is however bad for
importers of own nation as they have to pay a higher price for the imported goods valued in
foreign currency. The situation is reverse if value of domestic currency increases against the
foreign currency. When value of domestic currency increases this is a bad news for foreign
importers. Foreign importers then have to pay a larger price for the goods imported from the
nation (Asteriou, Masatci and Pılbeam 2016). Importers in the domestic nation however is
benefitted as imports become relatively cheaper to them. When value of a currency increases in
terms of foreign currency this is known as appreciation of currency. The volume of export and
import and associated trade balance thus is closely related with movement of currency exchange
rate.
Czech Republic is a highly open and export oriented economy. The main exports of the
nation include cars, computers, different parts of vehicles, machine parts, broadcast equipment
and others. The top export destinations are Germany, Slovakia, United Kingdom, France and
Poland. Major goods imported by the nation include machine parts, cars, broadcast equipment,
vehicle part and computer with imports mainly originating from China, Germany, Italy, Slovakia

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and Poland (Oec.world 2020). Volume of export and import in the nation fluctuated with
variation in the currency exchange rate. The official currency of Czech Republic is Czech
Koruna. Apart of fluctuation in currency exchange rate imports and exports also vary depending
on various trade policies. Protectionism measures taken by the country and its trading partners
significantly influence trade volume. Czech Republic however is a highly open economy and
mostly relies on promotion of free trade policy. The average tariff rate in Czech Republic is only
1.79 percent (Data.worldbank.org. 2019). This shows a minimal degree of trade restriction and
reliance towards free trade.
Volume of export and import in Czech Republic in the last five years is shown in the
figure 1. In order to evaluate the relation between export and import and that of exchange rate,
trend exchange rate during the same time period is presented in figure 2.
2014 2015 2016 2017 2018
0
50
100
150
200
250
0
2
4
6
8
10
12
14
16
18
Export, Import and Trade balance
Export Import Trade balance
Year
Export and import volume
Trade balance
Figure 1: Export and import of Czech Republic
(Source: Data.worldbank.org. 2019)

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2014 2015 2016 2017 2018
20.00
20.50
21.00
21.50
22.00
22.50
23.00
23.50
24.00
24.50
25.00
Exchange rate in Czech Republic
Year
CZK/USD
Figure 2: Trend in Czech Koruna exchange rate
(Source: Data.worldbank.org. 2019)
The volume of export in 2014 was recorded to be 171.54 billion USD. The associated
import volume was 158.32 billion USD. Since export was above the import the nation
experienced a trade surplus of amount 13.22 billion USD. The recorded exchange rate between
Czech Koruna and USD was 20.76. In 2015, exchange rate increases to 24.60 indicated a
depreciation of currency. Going by standard theory of exchange rate and trade volume, this
should have increased export while lowered export. However as shown by the recorded trade
statistics during this year both export and import declined in 2015. The decline in Czech’s export
during this time was mainly due to a decline in export to Russia because of the economic
sanction against Russia and other measures of retaliation (Lazarova 2015). Following this there
was a decline in both export and import of Czech. Since export dropped at a faster rate than the
import trade balance of Czech Republic with Russia went in deficit during this year (Tyll,
Pernica and Arltova 2018). For the next two years of 2017 and 2018 the domestic currency of

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Czech Republic appreciated with recorded exchange rate being 23.38 and 21.73 respectively.
The volume of export is recorded to be 172.14 billion USD and 192.22 USD in 2017 and 2018
respectively. The associated volume of import in the two respective years were 155.90 billion
USD and 176.57 billion USD.
The above discussion though suggests a smooth flow of trade in Czech Republic ongoing
trade protectionism measures globally overheated the economy. The decision of US president to
impose tariff on goods that China imports to US triggered a trade war between the two large
economies of the world (bbc.com 2020). The trade war resulted from US protectionism measure
likely to impact Czech economy by affecting its trade volume. Most of the trade of Czech
Republic occurs with EU countries with EU nations accounting 84% of total trade volume. Of
this Germany alone accounted 39 percent. The tariff imposed by President Trump affected some
sector other than aluminum and steel. The proposed tariff on automobiles would damage car
industry of Germany which indirectly affected Czech economy. The global trade tension due to
several protectionism measures have overheated the economy of Czech and are expected to
disrupt the trade flow in future.
Task 2: Czech Republic and Fiscal policy objectives
Fiscal policy and main tools of fiscal policy
Fiscal policy refers to the policy measure adapted by the government of a nation for
stabilizing the economy in terms of adjustment to the government spending and tax rates
(Guilmi, Gallegati and Landini 2017). The two main tools with which fiscal policy works are
government expenditure and tax.
Three main goals of fiscal policy for Czech Republic