In a small open economy , starting from a position of balanced trade , if the government increases domestic government purchases , this produces a tendency toward a trade deficit and a negative capital outflow. Hence, option(A) is correct.
12. In a small open economy, starting from a position of balanced trade, if the government...
8. In a small open economy, if the world real interest rate is above the rate at which national saving exceeds domestic investment, then there will be a trade _and net capital outflow. A) surplus; negative B) deficit; positive C) surplus, positive D) deficit; negative
31. Starting from a small open economy with balanced trade, if large foreign countries increase their domestic government purchases, this policy will tend to increase: A) investment in the small open economy. B) saving in the small open economy. C) exports by the small open economy. D) imports by the small open economy.
Suppose Country X is a small open economy with a huge trade deficit. Recently, her government suggests a reduction in income tax. Using the Classical Theories, explain what will happen to net capital outflow and real exchange rate in the long run. Explain the impact on the size of her trade deficit.
Question 14 Initially, there is a balanced trade in a small open economy with a perfect capital mobility. Suppose the world interest rate rw increases. Which of the following statement is correct? A. NX becomes positive. B. NX becomes negative. C. NX remains zero. D. It does not provide sufficient information to conclude if NX is positive, negative, or zero. E. None of the above is correct
19, which of the following statements is (are) correct? (x) A nation with a large trade surplus must have large and positive net capital outflow (y) A nation with a large trade deficit must have large and negative net capital outflow (z) A nation with a small trade deficit must have a slightly larger amount of exports than imports and slightly more capital outflow than capital inflow. A. (x), (y) and (z) B. (x) and (y) only C. (x) and...
Consider a parameter configuration such that a small open economy is currently running a trade balance deficit. Many governments have in the past implemented capital controls, for example, a legal restriction that prevent foreign agents from purchasing domestic financial assets. Presumably, the idea here is that a trade balance deficit is a ‘bad thing,’ and that the capital controls will serve to prevent an ‘excessive’ deficit from occurring. Use the theory developed here to show that while capital controls can...
ercise 5.8: Consider a parameter configuration such that a small open economy is currently running a trade balance deficit. Many governments have in the past implemented capital controls, for example, a legal restriction that prevent for- eign agents from purchasing domestic financial assets. Presumably, the idea here is that a trade balance deficit is a bad thing,' and that the capital controls will serve to prevent an 'excessive deficit from occurring. Use the theory developed here to show that while...
w a s Chapter 62006%20Trade%20Exercises%20Winter%202020%20Exercise%20-%201CM.pdf Open Economy (International Trade) The domestic Maize Market for a small closed economy of country XYZ is shown in the model below, and world price is $10/ton. Suppose the government of country XYZ decides to add tariff ($4/ton of import maize) to reduce imports. The model is shown below: Maize Market with Tariff S(domestic) Price/ton Domestic Price (with tariff) -- World Price Ddomestic) 32 35 4 5 25 30 18 20 22 Quantity of tons...
3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol)...
5. Consider a small open economy that is currently running a trade deficit. a. With the help of a graph, what would happen to the real interest rate, the trade deficit, and desired levels of saving and investment if government expenditures were to increase? b. With the help of another graph, what would happen to the real interest rate, the trade deficit, and desired levels of saving and investment if consumption expenditures were to decrease?