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Identify other possible sources of the current account deficits. Do current account deficits necessarily indicate problems in the economy?
Compute the change in external wealth for Opulenza. Compute Opulenza's current account. Is the CA in deficit or surplus?
What was the U.S. change in external wealth for 2004? What do the BEA data indicate was the U.S. valuation effect due to exchange rate changes for 2004?
Using your answers from (a), (b), and (c), write an expression for the stock of external wealth at the end of period 2 (W2).
Using the answer from (a), write an expression for the present value of the stock of external wealth in period N (WN).
Why might Argentina be able to borrow only $84 and not $150? If the MPK is 10%, what is the total payoff from the projects in future years?
Assuming that poor and rich countries have the same production function, illustrate how the poor country will converge with the rich country.
Can A be the same in Brazil as in the United States? If not, compute the level of A for Brazil. What is Brazil's MPK relative to the United States?
Draw a production function diagram (with output per worker y as a function of capital per worker k) and MPK diagram (MPK versus k) for the EU.
If the country desires to smooth consumption, how much should it borrow in period 0? What will the new level of consumption be from then on?
The country wakes up in year 1 and discovers that the war is still going on and will eat up. What will the new level of consumption be from then on?
Initially, there are two states of the world: Pestilence (P) and Flood (F). Devise a table with two rows corresponding to each state (rows marked P and F).
If policy makers are concerned about the current account deficit, discuss whether stimulatory fiscal policy or monetary policy makes more sense in this case.
How will expenditure increase in investment affect output, interest rates, and the current account?
How would a decrease in the money supply of Paraguay (currency unit is the guaraní) affect its own output and its exchange rate with Brazil?
For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, and TB.
The trade balance is TB = 5(1 - [1/E]) 0.25(Y - 8). What is the marginal propensity to consume foreign goods MPCF?
Why do countries with less independent central banks tend to have higher inflation rates?
The Lithuanian lita is currently pegged to euro. Using the IS-LM-FX model for Home and Foreign. Illustrate how each of the following scenarios affect Lithuania:
Discuss the potential costs and benefits of a fixed exchange rate regime in this case. Comment on fiscal discipline, seigniorage, and expected future inflation.
What is Home's net position in dollardenominated assets? If the peso depreciates to 1.2 pesos per dollar, what is the change in Home's external wealth in pesos?
In what ways do currency crises lead to banking crises in these countries? In what ways do banking crises spark currency crises?
How will this affect money demand in Riqueza? How will forex traders respond to this change? Explain the responses in the money market and the forex market.
What is a currency board? Describe the strict rules about the composition of reserves and domestic credit that apply to this type of monetary arrangement.
Suppose the government runs a deficit of $100 million each year from this point forward. What will eventually happen to the central bank's reserves?