Questions: 1. Explain what is middle income trap? How it happens?

The middle income trap is a development stage that characterizes countries that are squeezed
between low-wage producers and highly skilled and fast-moving innovators. Cost advantages in
manufactured exports that once drove growth start to decline in comparison with other lower-
wage countries. Caught between these two groups, many middle-income countries are without a
viable high-growth strategy. They are faced with new challenges, including social cohesion, a
large pool of young people in search of jobs, as well as millions who still live in misery and
poverty, particularly in lagging regions.
As global, institutional, and structural environments evolve, prior strategies no longer remain
effective at generating an equivalent rate of economic growth. Transition becomes more difficult
when the status quo prevails, and the emerging competitive sectors do not have a seat at the
table.  Many middle-income countries tend to make two common mistakes: either they cling too
long to past successful policies, or they exit prematurely from the industries that could have
served as the basis for their specialization process (Agénor and Canuto 2012; Aiyar et al. 2013;
Eichengreen, Park, and Shin 2013; Felipe 2012; Gill and Kharas 2007; Nungsari and Zeufack
2009; OECD 2007). Timing and smooth transition are the two keys to success.

2. Do you think macroprudential policy is fiscal policy? Explain why?

Monetary policy may be a blunt macroprudential instrument because it affects the entire
economy, so that any practical attempt to modify it along these may be counterproductive. In
practice, moreover, the welfare costs from a lower stability of inflation may outweigh the gains
(if any) from financial stability.
Interactions between monetary and macroprudential policies (europa.eu)
3. Write a short essay about your claim which policy might have big impact on your industry.
State your claim, evidence reference and reason.