Question

Compare the effects of sanctions on the global economies of North Korea and Cuba. Choose a time frame and determine how policies, currencies, tariffs, trade arrangements, and other variables not only impact a country, but a region and the global economy, as well. Examine the monetary aspects of international trade. Explain two monetary effects for balance of payments, foreign exchange, and exchange rate determination of these two countries. Be sure to include in your response the effect of recently reduced sanctions on Cuba.

Answer 1

The recent sanctions on North Korea and Cuba have caused slowdown in consumption, deflation, stagnant growth in GDP, higher unemployment and heavier austerity measures as imposed.

The 2008 global recession saw huge implications within the US and as results the growth was plunged in EUro area as well as Asian economies due to its domino effects till 2013. 2009-2013 saw lowest ever interest rates, lowest inflation and highest ever unemployment. Also dollar depreciated to large extent which helped nations like China and India to export lesser and led to increase in their trade deficit.

The recent sanctions on Cubaand North Korea have led to subdued exports and stagnant imports which has widened trade deficit and balance of payments deficit. Moroever the foreign exchanges kitty is all set to plunge to all time low because of sanctions and plunged exports. Moroever these have all contributed to slowdown in economic development and hence interest rates havebeen cut to boost consumption which also means the currency regime depreciates due to expansionary monetary policy.

International trade helps in improving monetary aspects like foreign exchange reserves, trade balance and fiscal budget.