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
Homework Answers
IF the trade is balance then an increase in the world interest rate will lead to a depreciation in the local currency. It will increase the exports in the market and decrease the imports. The answer is "A", NX becomes positive.
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Question 14 Initially, there is a balanced trade in a small open
economy with a perfect...
Question 10 Initially, there is a negative net capital outflow in a small open economy with...
Question 10 Initially, there is a negative net capital outflow in a small open economy with a perfect capital mobility. Suppose an investment tax credit is introduced to give a tax advantage to any firm building a new factory or buying a new piece of equipment. Which of the following statement is correct in the loanable funds market? A. Savings increase and investment increases. B. Savings decrease and investment increases. C. Savings increase and investment remains unchanged. D. Savings remain...
12. In a small open economy, starting from a position of balanced trade, if the government...
12. 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 _and net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
13. A small open economy with perfect capital mobility is characterized by all of the following...
13. A small open economy with perfect capital mobility is characterized by all of the following except that: A) its domestic interest rate always exceeds the world interest rate. B) it engages in international trade. its net capital outflows always equal the trade balance. D) its government does not impede international borrowing or lending,
Macroland is a small open economy with perfect capital mobility and a fixed-exchange-rate system. Macroland is...
Macroland is a small open economy with perfect capital mobility and a fixed-exchange-rate system. Macroland is initially in the long-run equilibrium at the natural level of output with balanced trade. With the help of an appropriate diagram, compare the impact of a tax cut in the short run (when prices are fixed) and in the long run (when prices are flexible) on: 1. Output, 2. Consumption, 3. Investment, 4. Net exports 5. Exchange rate.
8. In a small open economy, if the world real interest rate is above the rate...
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
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.
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.
14. Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the...
14. Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the world consists of a small open economy (we call this domestic) and the rest of the world (we call this foreign). Answer the following questions with the aid of figures where appropriate a. How does an increase in domestic government expenditure affect trade balance and real exchange rate? (2 points] b. How does an increase in foreign government expenditure affect the trade balance and...
3. (8 points) Consider a small open economy in the Specific-Factors model with 2 goods (C and F) ...
True or False, only answer part c is fine
3. (8 points) Consider a small open economy in the Specific-Factors model with 2 goods (C and F) and three factors (mobile labor, fixed capital in C, and fixed land in F). Except otherwise noted, assume that every factor has the same preferences for C and F. Under free trade, the economy exports F. (a) As the home country opens up from autarky to trade, the opportunity cost of F in...
5. A small open economy is initially in trade balance. There is a temporary increase in...
5. A small open economy is initially in trade balance. There is a temporary increase in householo income fo r one period (i.e. rise in y.). What effect does this have on the current acc period t and the following periods? Does this story change if the increase in income is permanent?
12. 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 _and net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
13. A small open economy with perfect capital mobility is characterized by all of the following except that: A) its domestic interest rate always exceeds the world interest rate. B) it engages in international trade. its net capital outflows always equal the trade balance. D) its government does not impede international borrowing or lending,
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.
14. Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the world consists of a small open economy (we call this domestic) and the rest of the world (we call this foreign). Answer the following questions with the aid of figures where appropriate a. How does an increase in domestic government expenditure affect trade balance and real exchange rate? (2 points] b. How does an increase in foreign government expenditure affect the trade balance and...
True or False, only answer part c is fine
3. (8 points) Consider a small open economy in the Specific-Factors model with 2 goods (C and F) and three factors (mobile labor, fixed capital in C, and fixed land in F). Except otherwise noted, assume that every factor has the same preferences for C and F. Under free trade, the economy exports F. (a) As the home country opens up from autarky to trade, the opportunity cost of F in...
5. A small open economy is initially in trade balance. There is a temporary increase in householo income fo r one period (i.e. rise in y.). What effect does this have on the current acc period t and the following periods? Does this story change if the increase in income is permanent?
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