What will happen to the trade balance and the real exchange rate of a small open economy when government purchases increase, such as during a war? Does your answer depend on whether this is a local war or a world war?
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What will happen to the trade balance and the
real exchange rate of a small open economy
when government purchases increase, such as
during a war? Does your answer depend on
whether this is a local war or a world war?
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- Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?If domestic Investment increases, and there is no change in the amount of private and public saving, what must happen to the size of the trade deficit?Consider a country with a flexible exchange rate, and which initially has a current account surplus of zero. Then, suppose there IS an anticipated InCrease in tuture total tactor productivity. a) Determine the eauilibrium etects on the domestic economv in the case where there are no capita. controls. In particular, show that there will be a current account dehicit when arms and consumers anticipate the increase in future total factor productivity. b) Now, suppose that the government dislikes current account deficits, and that It imposes capital controls in an attempt to reduce the current account deficit. With the anticipated increase in future total factor productivity, what will be the equilibrium efects on the economy? Do the capital controls have the desired efect on the current account deficit? Do capital controls dampen the effects of the shock to the economy on output and the exchange rate? Are capital controls sound macroeconomic policy in this context? Why or why not?
- A popular measure of a country’s “openness” to international trade is an index computed as the sum of the country’s exports and imports divided by its GDP. Calculate and graph the openness index for the United States using quarterly data since 1947. What has been the postwar trend? Can you think of any factors that might help explain this trend? (Hint: Be careful with the data, as some databases record imports with a negative sign and then add them to exports to get net exports. If that is the case with your data, take the absolute value of imports before adding it to exports, because we are interested in the total volume of trade, not the balance of trade.)Discuss the drawbacks of primary-sector-intensive outward-looking trade policies. How didthe Prebisch-Singer hypothesis critique such policies and support the implementation of importsubstitution industrialization (ISI) strategies? Also discuss the similarities and differencesbetween export-oriented industrialization strategies versus ISI. Which of these policies would beassisted by an undervalued exchange rate? Explain .If the price level recently increased by 19% in Englandwhile falling by 6% in the Canada, by how much mustthe exchange rate change if PPP holds? Assume that thecurrent exchange rate is 0.58 pound per dollar
- By using the concept of the Standard Trade Model, and the assumptions of the H-O model. a) Explain with a graph why with the increase in the relative price of Cloth PC/PFthen should domestic export Cloth?b) If a country exports Cloth and imports Food, then there isbiased growth on cloth, how will it affect the terms of trade?Explain.c) With the same assumptions in number b), what is the impact of export-biased growth and import biased growth of domestic countries on welfaredomestic? Explainneed answer . absuletly upvote !!!! 1) Consider the dollar-yen exchange market, where the exchange rate represents the dollar price of one yen. The US is the demand side of the market and Japan is the supply side. In each of the following cases determine whether the exchange rate increases or decreases: a) per capita income in the US increases b) per capita income in Japan increases c) US inflation is greater than Japan's inflation d) there is an increase in US interest rates.Let’s assume that some foreign countries start to subsidize investment by instituting an investmenttax credit.a) What happens to world investment demand as a function of the world interest rate?b) What happens to the world interest rate?c) What happens to investment in our small open economy?d) What happens to our trade balance?e) What happens to our real exchange rate?
- Suppose there is a rise in foreign output, Y*. This rise in Y* will cause which of the following to occur?The domestic country’s output decreases.The domestic country’s consumption increases.The domestic country’s trade balance worsens.all of the abovenone of the aboveA French worker has 100 shirts or 20 in a yeara computer can produce, while a British worker can produce 100 shirtsor let's say it can produce 10 computers.- In this direction, as in question l, both the French andProduction possibilities for the British in Tabular Formyour show.- France and England each have 100 workerslet's assume. Each country, half of its employees in each sectorif it does, how many shirts and computers does each country produce?What is the total output of the shirt and computer in the worldmuch?- Now compare all employees of each countrythat he specialises in the industry in which he has the upper handlet's assume. In this case, shirts and computershow much is the total output in the world?Suppose the United States decides to subsidize theexport of U.S. agricultural products, but it does notincrease taxes or decrease any other governmentspending to offset this expenditure. Using a threepanel diagram, show what happens to nationalsaving, domestic investment, net capital outflow, theinterest rate, the exchange rate, and the trade balance.Also explain in words how this U.S. policy affects theamount of imports, exports, and net exports.