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- The macroeconomic view of a trade deficit implies that, other things equal, the imposition of a tariff will reduce South Africa's trade deficit A. Because exports will be promoted and imports cannot possibly change B.Because imports will be reduced and exports cannot possibly change C.Only if the tariff has no impact on South Africa's spending or income D.Only if the tariff leads to increased income in South Africa relative to its spendingA country finds itself in the following situation: a government budget deficit of $1200; total domestic savings of $400, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment decreases by $300 while the government budget deficit and savings remain the same, what will be the new value of the trade deficit after investment decrease?Suppose a country is experiencing a situation where output is above the full employment level of output and a trade deficit . Further , assume that the policy makers goals are to achieve full employment output and balanced trade . Given this information , what type of exchange rate and / or fiscal policy can be used to achieve simultaneously these two goals ? Explain .
- A country finds itself in the following situation: a government budget deficit of $2400; total domestic savings of $900, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment decreases by $600 while the government budget deficit and savings remain the same, what will be the new value of the trade deficit after investment decreases?You are the economic advisor to the Government of Sweden, a country that is not a member of the European Union but trades quite a bit with EU countries and with whom there is a high degree of capital mobility. (a) Suppose that the members of the European Union enact a large tax cut financed by a large increase in their deficit. What should happen to exchange rates in Sweden? What should happen to Sweden’s trade balance? Show the effects using appropriately labeled graphs, including that of the foreign exchange market. (b) Suppose instead that the European Central bank increase the money supply. What should happen to exchange rates in Sweden? What should happen to Sweden’s trade balance? Show the effects using appropriately labeled graphs, including that of the foreign exchange market. (c) If you are very interested in keeping the Swedish exchange rate constant at the rate it was before the EU tax cut, what specific policy would you recommend to do this, i.e. to keep your currency from…Suppose we are in Balance of Payment equilibrium with a trade deficit of 300. What happens to the trade deficit if the public sector sells 100 in securities to the foreign sector to finance the budget deficit?
- Australia has a current account surplus of $3 billion per quarter and a net income deficit of $3 billion per quarter. Which of the following is TRUE? a. The trade surplus is $6 billion per quarter b. The capital account deficit is $6 billion per quarter c. Net foreign liabilities are increasing d. All the other optionsSelect all of the following statements which can be said of a country with a current account deficit over the previous year: The country is exporting more than it is importing, assuming that net foreign aid and investment income is zero. The country was a net borrower over the previous year. Assuming zero net foreign aid and investment income, the country imported more than it exported. The country will experience upward pressure on its currency prices. The country must decrease its currency reserve account.A Senator announces his past support for protectionism. “The U.S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidize U.S. exports instead, we can reduce the deficit by increasing our competitiveness.” Using a three-panel diagram from Chapter 19 in the Mankiw textbook, show the effects of an export subsidy on U.S. net exports, national saving, domestic investment, net capital outflows, the interest rate, and the real exchange rate. Do you agree with the senator?
- Explain why temporary and permanent fiscal expansions do not have different effects under fixed exchange rates, as they do under floating.Explain fully the concept of “Twin Deficits” and use this concept to explain why the cause of the US trade deficit with China is largely due to American wars across the globe.A country finds itself in the following situation: a government budget deficit of $500; total domestic savings of $1310, and total domestic physical capital investment of $2100. According to the national saving and investment identity, if investment increases by $150 while the government budget deficit and savings remain the same, what will be the new value of the trade deficit after the change in investment?