MACROECONOMICS (LOOSELEAF)-PACKAGE
13th Edition
ISBN: 9781337492317
Author: Baumol
Publisher: CENGAGE L
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Chapter 19, Problem 4DQ
To determine
To describe: The similarity between problems faced by a country in the concept of balance of payments deficit, and the governments trying to keep up the prices above the equilibrium level.
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Over the past four years, the US trade deficit has
increased to $576.9 billion. Based on your
understanding of what it means to have a trade
deficit, is this number too large? Why or why not?
What are the implications for the short-term and
long-term US economy?
Suppose the US goes into a recession where the economy is not growing very quickly (or is actually shrinking) while the economies of our trading partners remain strong. What will most likely happen to our trade deficit? In your answer, explain what will happen to US exports and US imports and why.
In an economy open to trade, must a government budget deficit always be accompanied by an external sector deficit? Why or why not? Could a government budget deficit lead to a government budget surplus?
Chapter 19 Solutions
MACROECONOMICS (LOOSELEAF)-PACKAGE
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Similar questions
- Generally, how does the standard of living in the United States today compare to the standard of living in other countries? To the standard of living in the United States a century ago?The Bureau of Economic Analysis, or BEA, is a government agency collecting various U.S. economy statistics. From the BEA’s website, find data for the most recent year available on U.S. exports and imports of goods and services. Is the United States running a trade surplus or deficit? Calculate the ratio of the surplus or deficit to U.S. exports.There are many people out there providing opinions on the economy. How can differences of opinion about economic policy recommendations be resolved?arrow_forwardWhat is a trade deficit? a) When a country exports more goods than it imports b) When a country's imports and exports are balanced c) When a country imports more goods than it exports d) When a country has no international tradearrow_forwardUnder what conditions will a larger budget deficit cause a trade deficit?arrow_forward
- The balance of trade shows a deficit of $200 million. With the value of exports being $300 million, what should be the value of imports?arrow_forwardSuppose that during a recent year for the United States, merchandise imports were $2 trillion, unilateral transfers were a net outflow of $0.2 trillion, service exports were $0.2 trillion, service imports were $0.1 trillion, and merchandise exports were $1.4 trillion. What was the merchandise trade deficit? What was the balance on goods and services? What was the current account balance?arrow_forwardSketch a diagram of how a budget deficit causes a trade deficit. (Hint: Begin with what will happen to the exchange rate when foreigners demand more U.S. government debt.)arrow_forward
- What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: “A trade deficit means that a nation is receiving more goods and services from abroad than it is sending abroad.” How can that be considered to be “unfavorable”?arrow_forwardA 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?arrow_forwardHow does a growing trade deficit affect a country's GDP? Explain your answer.arrow_forward
- If a country's economic data shows that private savings equal $300 million, government spending equals $400 million, taxes equal $300, and the trade surplus equals $100 million, then what does investment equal? (Enter 1 for 1 million)arrow_forwardIn 2019, the total U.S. trade with foreign countries was $5.6 trillion. How do U.S exports affect domestic production? In contrast, how do U.S. imports affect domestic production? Explain the consequences of reducing U.S. imports to $0.arrow_forward
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