ECO 1102 Lecture Notes - Lecture 17: Foreign Portfolio Investment, Autarky, Kuwaiti Dinar
ECO 1102 Full Course Notes
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An economy with zero net exports is described below:
C | = 100 + 0.6 (Y 'T) |
I p | = 70 |
G | = 120 |
NX | = 0 |
T | = 150 |
The multiplier in this economy is 2.5. | |
A. Find short-run equilibrium output.
Instruction: Enter your response as an integer value.
Short-run equilibrium output: .
B. Economic recovery abroad increases the demand for the country's exports; as a result, NX rises to 80.
Instruction: Enter your response as an integer value.
Short-run equilibrium output (Click to select)decreases/ increases to ________ .
C. Assume that foreign economies are slowing, reducing the demand for the country's exports so that NX = -80. (A negative value of net exports means that exports are less than imports.)
Instruction: Enter your response as an integer value.
Short-run equilibrium output (Click to select)increases/decreases to ___________ .
D. Which of the following best describes the tendency of recessions and expansions to spread across countries?
1. Lower planned aggregate spending in one nation will reduce the amount of goods it exports abroad, thereby lowering the value of imports for its trading partners, which will reduce its short-term equilibrium output as well.
2. Lower planned aggregate spending abroad means that fewer goods will be exported from a specific nation, leaving more goods available for domestic consumption (C) in that nation, which will increase its short-term equilibrium output.
3. Lower planned aggregate spending abroad will reduce the amount of investment that flows into domestic industries from other countries, thereby reducing domestic short-term equilibrium output.
4. Lower planned aggregate spending in a nation means fewer imports of foreign goods, thereby reducing the short-term equilibrium output of its trading partners through lower net export (NX) values in those nations.
An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true:
Net Capital OutflowNet Capital Outflow | = = | Net ExportsNet Exports |
In other words, if a transaction directly affects the left side of this equation, then it must also affect the right side. The following problem will help you understand why this identity must hold.
Suppose you are a software engineer living in the United States, and you just sold your latest product to a Russian consumer for RUB 7,000.
Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column.
Hint: The magnitude of change should always be positive, regardless of the direction of change.
Direction of Change | Magnitude of Change | ||
---|---|---|---|
(Rubles) | |||
Exports |
| ||
Imports |
| ||
Net Exports | Increase/no change/decrease |
Because of the identity equation that relates to net exports, the in U.S. net exports is matched by in U.S. net capital outflow. Which of the following is an example of how the United States might be affected in this scenario? Check all that apply.
You store the rubles in your safety deposit box at home.
You purchase RUB 7,000 worth of stock in a Russian corporation.
You buy RUB 7,000 worth of Russian bonds.
QUESTION 1
If a real asset located in Brazil is sold to someone in the US, the transaction would result in a credit in Brazil's balance of payments.
True
False
6.25 points
QUESTION 2
The balance of payments for a given nation records
only imports and exports of good and servies
only foreign direct investment and portfolio investments between nations
both imports and exporst of good and servieces as well as forein direct investment and portolio investments between nations
QUESTION 36.25 points
Transactions between Canada and the rest of the world are shown below. Use the following information to answer the next four questions.
Canadian citizens receive C$5 million worth of dividends from foreign investments.
Imperial Oil (Canadian firm) invests C$60 million in overseas oil discovery.
Foreign tourists spend C$45 million in Canada.
Canadian government sells C$20 million worth of treasury securities to foreign nations.
Alcan (Canadian firm) sells C$8 million worth of aluminum to US companies.
Canadian government buys C$32 million worth of gold.
Canadian firm buys C$12 million worth of computer components from Sony.
Canada sends C$4 million in aid to Mexico.
Ford spends C$30 million in constructing an assembly plant in Canada.
Find Canada's balance of trade. Enter your final answer in terms of millions of dollars. Do not enter a non-numerical value when inputting your answer.
6.25 points
QUESTION 4
Find the capital account balance (in millions of C$).
-39 | ||
19 | ||
70 | ||
6.25 points
QUESTION 5
Find Canada's current account balance. Enter your final answer in terms of millions of dollars. Do not enter a non-numerical value when inputting your answer.
6.25 points
QUESTION 6
Canada's capital account balance suggests that it is a net supplier of capital to the rest of the world.
True
False
6.25 points
QUESTION 7
Suppose a nation has a current account surplus. This surplus implies
ation | ||
ation | ||
none of the above |
6.25 points
QUESTION 8
Suppose that the value of the dollar moves from £=$1.5 to £=$1.75. What effect would this have on the UK's balance of trade, all else being equal?
UK | ||
UK | ||
UK | ||
6.25 points
QUESTION 9
There is an inverse relationship between the demand for US exports and the US inflation rate.
True
False
6.25 points
QUESTION 10
Transactions between Great Britian and the rest of the world are shown below. Use the following information to answer the next two questions.
British companies sell 50 million pounds worth of bonds to foreigners.
British government sells 20 million pounds of treasury securities to foreigners.
British citizens receive 2 million pounds in interest from foreign investments.
British companies buy 85 million pounds worth of American produced steel.
GlaxoSmithKline (British firm) sells 40 million pounds of pharmaceutical drugs abroad.
British government buys 15 million pounds of gold in FX market.
British bankers invest 12 million pounds in foreign banks.
Find Great Britian's balance of trade. Enter your answer in terms of millions of pounds. Do not use the pound sign or any other non-numerical value when inputting your answer.
and
Transactions between Great Britian and the rest of the world are shown below. Use the following information to answer the next two questions.
British companies sell 50 million pounds worth of bonds to foreigners.
British government sells 20 million pounds of treasury securities to foreigners.
British citizens receive 2 million pounds in interest from foreign investments.
British companies buy 85 million pounds worth of American produced steel.
GlaxoSmithKline (British firm) sells 40 million pounds of pharmaceutical drugs abroad.
British government buys 15 million pounds of gold in FX market.
British bankers invest 12 million pounds in foreign banks.
Find Great Britian's balance of trade. Enter your answer in terms of millions of pounds. Do not use the pound sign or any other non-numerical value when inputting your answer.