Homework Answers
A transitory increase in income, induced by changes in aggregate demand, worsens the trade balance , bcoz as household income rises, domestic consumption rises
Since increase in temporary income is spread over years,so trade balance will worse in the following periods also
Permanent increase in income leaves trade balance unchanged bcoz both income & consumption gets changed by same amount.
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5. A small open economy is initially in trade balance. There is a temporary increase in...
Consider a two-period lived representative agent for an economy, whose preferences for consumption are described by...
Consider a two-period lived representative agent for an economy, whose preferences for consumption are described by the lifetime utility function U = InC1 + InC2 a. Compare the effects of a temporary and a permanent income fall on current account. Suppose that the output of the economy in the two periods are 100 (Y1) and 100 (Y2), and r is 5%. b. Does the economy run a trade balance deficit or surplus in period 1? How about period 2? Explain...
1. In the two-period small open (endowment) economy model reviewed in Chapter 3 of the textbook,...
1. In the two-period small open (endowment) economy model reviewed in Chapter 3 of the textbook, when a consumer chooses to allocate all of its lifetime wealth to consumption in period 2 and if Bo=0 then her C2 must be equal to: (a) Q2 + (b) Q2 + 14, (c) Q:(1+r)+22 (d) Q2(1 + r) + Q1 (e) 9+02 2. When the world interest rate rises then the income effect leads to a(n): (a) decrease in consumption in period 1...
Question 14 Initially, there is a balanced trade in a small open economy with a perfect...
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
31. Starting from a small open economy with balanced trade, if large foreign countries increase their domestic gover...
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.
If there is an increase in taxes on business firms in a small open economy, it...
If there is an increase in taxes on business firms in a small open economy, it causes the current account to and saving fall; fall rise; remain unchanged fall; remain unchanged rise; fall
If a small open economy cuts defense spending, what happens to saving, investment, the trade balance,...
If a small open economy cuts defense spending, what happens to saving, investment, the trade balance, the interest rate, and the exchange rate?
5. Consider a small open economy that is currently running a trade deficit. a. With the...
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?
1. Use the model of the small open economy to examine the effects of the following on saving, investment, the trade bala...
1. Use the model of the small open economy to examine the effects of the following on saving, investment, the trade balance, the interest rate under the following scenarios? (a) Increase in taxes abroad (b) Increase in taxes at home
1. Consider the following economy of Syldavia (a small open economy) Y=C+I+G+NX , NX = S-I...
1. Consider the following economy of Syldavia (a small open economy) Y=C+I+G+NX , NX = S-I Y=8000 G=750 T=750 C=1000+0.75(Y-T) I=1000-100r NX=500-500e r=r*=5 d. [ 5 points] Suppose the world interest rate drop from r=5 to 2percent (assume government G=750). Find the national saving, investment, trade balance, capital outflow and equilibrium exchange rate.
In the (Standard) SpecificFactors Model of a small open economy that initially exports good X, analyze the effects on th...
In the (Standard) SpecificFactors Model of a small open economy that initially exports good X, analyze the effects on the quantity of X exported due to the following changes (one at a time): a. A fall in the price of good Y, holding the price of good X constant. b. An increase in the size of the labor force c. Destruction of a part of the capital stock employed in the Y industry
Consider a two-period lived representative agent for an economy, whose preferences for consumption are described by the lifetime utility function U = InC1 + InC2 a. Compare the effects of a temporary and a permanent income fall on current account. Suppose that the output of the economy in the two periods are 100 (Y1) and 100 (Y2), and r is 5%. b. Does the economy run a trade balance deficit or surplus in period 1? How about period 2? Explain...
1. In the two-period small open (endowment) economy model reviewed in Chapter 3 of the textbook, when a consumer chooses to allocate all of its lifetime wealth to consumption in period 2 and if Bo=0 then her C2 must be equal to: (a) Q2 + (b) Q2 + 14, (c) Q:(1+r)+22 (d) Q2(1 + r) + Q1 (e) 9+02 2. When the world interest rate rises then the income effect leads to a(n): (a) decrease in consumption in period 1...
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.
If there is an increase in taxes on business firms in a small open economy, it causes the current account to and saving fall; fall rise; remain unchanged fall; remain unchanged rise; fall
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?
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