1. How would a relatively high home inflation rate affect the home country's current account, other things being equal?
2. Is a negative current account harmful to a country? Discuss.
3. Explain why a stronger dollar could enlarge the US balance of trade deficit.
4. Explain why a weaker dollar could affect the US balance of trade deficit.
5. Explain how the following transaction generates two entries (a credit and a debit) in the U.S. balance of payments accounts, and describe how each entry would be classified:
A U.S. resident buys a typewriter from the Italian company and pays with a $300 check.
6. Suppose that the price elasticity of demand for exports is equal to -0.50 and the price elasticity of demand for imports is equal to -0.35. Explain whether the Marshall-Lerner condition (MLC) is satisfied or not satisfied, and then explain the implication of being satisfied or not satisfied on the current account position.
7. This question concerns the J-curve effect. In the figure below, explain the J-curve effect and whether or not the figure provides evidence supporting the J-curve effect.
