a)
The current U.S.
a)
Explanation of Solution
It is False because of rising demand on both domestic and imported products as savings decline. As there are some goods which U.S. does not produce? Even there are some products they imports even a country produce domestically due to the large demand from home country.
Introduction: A trade deficit occurs when the imports of a nation surpass its exports for a given period of time. The demand for import rises due to many factors like increase in the preference for the particular product, low cost of producing output as compare with home country.
b)
The national identity implies that budget deficits cause trade deficits is true or false
b)
Explanation of Solution
It is False Since an increase in the budget deficit would lead to an increase in the trade deficit, we cannot infer from the identity of the
Introduction: The identity of national income says that consumption expenditures, plus investment expenditures, plus government spending, plus exports, minus imports, that provides give
c)
The opening the economy to trade tends to increase the multiplier because an increase in expenditure leads to more exports is true or false.
c)
Explanation of Solution
It is False because Expenditure changes will now be shared between domestic and international products.
Introduction: An impact in economics where an increase in spending causes an increase in national income and consumption that is greater than the amount spent initially. For instance, if a business builds a factory, it will hire construction workers and their suppliers as well as those employed in the factory.
d)
If the trade deficit is equal to zero, then the domestic demand for goods and the demand for domestic goods are equal is true or false.
d)
Explanation of Solution
It is true, if the trade deficit is equal to zero, then the domestic demand for goods and the demand for domestic goods are equal. Countries have a favorable
Introduction: A trade deficit occurs, when a nation imports more than it exports. A trade gap is neither necessarily positive nor poor inherently. A trade deficit may be a symbol of a healthy economy, and may lead to stronger
e)
A real
e)
Explanation of Solution
It is False as Econometric evidence suggests that a real depreciation does not result in immediate trade balance change. Trade balance usually increases six to twelve months after a true depreciation.
Introduction: Domestic currency depreciation means a decline in the value of the domestic currency in foreign currency terms.
f)
A small open economy can reduce its trade deficit through fiscal contraction at a small cost in output than can a large open economy is true or false.
f)
Explanation of Solution
It is true; a small open economy can minimize its trade deficit through fiscal contraction at a smaller cost in output than can a large open economy.
Introduction: In a small open economy, equilibrium occurs when saving equals investment; however, there is equilibrium in a open large economy when saving less desired investment equals net exports.
g)
The experience of the United States in the 1990s shows that real exchange rate appreciations lead to trade deficits and real exchange rate depreciations lead to trade surpluses is true or false.
g)
Explanation of Solution
It is true, the history of the United States in the 1990s indicates that real currency appreciations lead to trade deficits and real depreciation of the exchange rate leads to trade surpluses.
Introduction: In general terms, appreciation reflects an improvement in the value of an asset over time. The rise may occur for a variety of reasons, including increased demand or declining supply, or due to inflation or interest rate changes.
h)
The decline in real income can lead to a decline in imports and thus a trade surplus is true or false.
h)
Explanation of Solution
It is true; a decline in real income can lead to a decline in imports because people prefer to buy more when income of the people increases where as fall in real income discourage to purchase and when a country reduce the volume of import then it can have a trade surplus foe a home country.
Introduction: A trade surplus is one of the economic indicator that reflect a healthy trade balance, in which exports of a nation outweigh its imports.
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Chapter 18 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
- How could a greater budget deficit increase the trade deficit? What happens to the multiplier if there is an increase in the marginal propensity to consume? What would likely happen to the level of economic activity if the government took the necessary steps to reduce the deficit significantly in a relatively short period of time? When is the most appropriate time to reduce the deficit?arrow_forwardExplain 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.arrow_forwardIf a country has a trade deficit of $30 billion, which of the following can be true? Group of answer choices The country's exports are $150 billion and its imports are $120 billion. The country's exports are $110 billion and its imports are $140 billion. The country's exports are $140 billion and its imports are $40 billion. The country's exports are $120 billion and its imports are $140 billion.arrow_forward
- “There has been a turnaround from the sizeable net outflows over the past two years when South African companies stepped up their efforts to internationalise their businesses. The shift in direct investment trends made a small contribution to improving the financial account of South Africa’s balance of payments, which showed a surplus of 3.5% for the third quarter, up from 1.3% the previous quarter. The Reserve Bank’s quarterly bulletin shows that capital inflows were more than adequate to finance the deficit on the current account deficit of the balance of payments, which widened to 4.1% from a revised 2.9% in the third quarter. Economists expect that the current account deficit, which tends to be a driver of the rand exchange rate, will narrow again in the fourth quarter as exports pick up again” (Joffe, 2016). In your opinion, can the government keep export demand stimulated such that the balance of payments remains dazzlingarrow_forwardTwin deficits refer to the combination of government budget deficit and trade deficit. The relationship between the 2 types of deficit is If the government budget deficit decreases, then the trade deficit would rise. An increase in the government budget deficit can lead to a greater trade deficit, but not always. During a recession, both deficits are likely to fall.arrow_forwardImagine that the U.S. economy finds itself in the following situation: a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion. According to the national saving and investment identity, what will be the trade balance? What will be the trade balance if investment rises by $50 billion, while the budget deficit and national savings remain the same?arrow_forward
- Consider two large open economies - U.S. and Europe. If expansionary fiscal policy is adopted in Europe, what happens in the U.S? net capital outflow rises, the real interest rate falls and investment spending rises. net capital outflow falls, the real interest rate rises and investment spending rises. net capital outflow falls, the real interest rate rises and investment spending falls. net capital outflow rises, the real interest rate rises and investment spending falls. In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate: rises, while the real exchange rate falls and net exports rise. falls, while the real exchange rate rises and net exports fall. rises, while the real exchange rate rises and net exports fall. falls, while the real exchange rate rises and net exports rise. Political instability in the U.S. Political instability in the U.S.arrow_forwardFuture U.S. deficits could be decreased by options: increasing transfer payments and decreasing interest payments on the debt increasing government expenditures and decreasing taxes decreasing current and future taxes decreasing government expenditures and increasing taxesarrow_forwardSelect 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.arrow_forward
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