we allow for international trade. Use the following information from problem 1: C = 400
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2. Imports and Exports
Now we allow for international trade. Use the following information from problem 1:
C = 400 + (8/9)*DI I = 300
G = 800
T = (1/2)*Y.
Suppose that exports are constant at X = 300.
Let imports be a fraction of real income: M = (1/9) * Y.
a. Give intuition for why imports M are positively related to
b. Suppose that national income increases by $1. How much will spending on imports increase (the marginal propensity to import) in this case?
c. Compute the equilibrium level of national income under international trade. d. Suppose that government spending increases by $120.
i) Compute the new equilibrium national income.
ii) Based on your numerical answer to (i), calculate the change in national income from a one dollar increase in government spending.
iii) Derive the new fiscal multiplier from an increase in government spending using an algebraic equation. Compare to Problem 2.d.(ii). Compare to Problem 1.c.(v).
e. Trade Representative: “In an open economy with international trade, government spending is much more effective at fighting recessions than in a closed economy.” Evaluate.
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- Use the following terms for this question: C = Consumption. I = Capital investment spending. G = Government spending. X = Exports of goods and services. M = Imports of goods and services. BOP = Balance of Payments. GDP = Gross Domestic Product. NPV = Net Present Value. INF = Inflation. R = Real rate of return. The static equation for a country’s GDP is: A. GDP = C + I + G + X – M - (R – INF). B. GDP = C + I + G + X + M. C. GDP = C + I + G + X – M. D. GDP = C + I + X - M + R – INF.Given the following information, are there geographic arbitrage opportunities available? If so, what level of additional transaction costs in each market will eliminate this opportunity? (All quotes are at time 0). Quotes for the US dollar in South Korea: 1361-1385 Quotes for the South Korean Won in the US: 0.000741 - 0.000762.Suppose £1=€1.28 in Paris, €1 =TL 9.30 in İstanbul, and £1 = TL 13 in London. ignoring transaction costs, are there any arbitrage profit for each currency initially traded? If yes prove at least two of them.
- Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places. Input all amounts as positive values.) EAFE Weight Return on Equity Index E1/E0 Manager's Weight Manager's Return Europe 0.40 16% 0.90 0.55 17% Australasia 0.50 16 1.30 0.12 20 Far East 0.10 21 1.10 0.33 20Based on the information provided in the table below, calculate the contribution to total performance from currency, country and stock selection for the manager. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. Dollar. EAFE Weight Return on Equity Index (%) Currency Appreciation E1 / E0 - 1 Manager’s Returns Manager’s Weight (%) Europe 0.3 10 10 0.35 8 Australia 0.1 5 -10 0.10 7 Far East 0.6 15 30 0.55 18Assume the following information: Quoted Price Value of Canadian dollar in U.S. dollars $.90 Value of New Zealand dollar in U.S. dollars $.30 Value of Canadian dollar in New Zealand dollars NZ$3.02 Given this information, is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of triangula r arbitrage?
- Q3-3 Under a flexible-rate system, when the BP curve is flatter than the LM curve (i.e., there is relative capital mobility), an autonomous increase in foreign interest rates will have what impacts on the domestic interest rate and domestic national income? Select one: a. domestic interest rate will increase, domestic national income will decrease b. domestic interest rate will increase, domestic national income will not change c. domestic interest rate will increase, domestic national income will increase d. domestic interest rate will not change, domestic national income will decreaseIf national income Y = 10,500, disposable income Yd = 8,500 , consumption is C = 8,000, transfer payments TR = 150 and the budget deficit is BD = 200, what is the level of private domestic investment, I ? (please insert the round number without the Euro symbol)Consider Firm A and Firm B that both produce the same product. Firm A would more likely have more stable cash flows if its percentage of foreign sales were ____ and the number of foreign countries it sold products to was ____. A. higher; small B. lower; small C. higher; large D. higher; large
- Assume the following information: Quoted Price Value of Canadian dollar in U.S. dollars $.90 Value of New Zealand dollar in U.S. dollars $.30 Value of Canadian dollar in New Zealand dollars NZ$3.02 Given this information, is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of triangular arbitrage? a) Diamond Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist: Lending Rate Borrowing Rate U.S. dollar 7.0% 7.2% Singapore dollar…Given this information. Is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage and compute the profit from this strategy if you had $1,000,000 to use. Value of Canadian dollar in US dollars $ 0.90 Value of New Zealand dollar in US dollars $ 0.30 Value of Canadian dollar in New Zealand dollars NZ$ 3.02Assume the following quotes: Citibank quotes U.S. dollars per pound at $1.5400/£ National Westminster quotes euro per pound at €1.6000/£ Deutsche bank quotes dollars per euro at $0.9700/€ Is there an arbitrage opportunity based on these quotations? If so, show how a market trader with one million $ (1,000.000 $) can make an inter-market arbitrage profit, and calculate that profit.