Question 1 Assume a small scale French farmer sells 100,000 lbs. of milk to a French intermediary company for â¬2.00 per lbs. The intermediary company package the milk in fancy containers and sells it to Danone for â¬3.50 per lbs. Danone uses the milk to produce yogurt in its plant in Seville, Spain, Total output will be 6000 container and each container of yogurt for â¬5.75. How will this string of transactions affect French GDP? How will it affect French GNP? How will it affect Spanish GNP and GDP? Which will be more reflective of the true output for each economy? Explain
Question 2
Consider an open economy described by the following equations (all figures in millions of dollars): Y = C + I + G + NX Y = 8,000 (current value of output) G = 2,000 T = 1,000 + .1(Y) C = 450 + 0.75 (Y â T) I = 2,000 â 40 r NX = 700- 600É (É is the exchange rate) r = r* = 5 a) What is the current state of this economy in term of national saving, investment, the trade balance and the equilibrium exchange rate? b) Suppose government approve an infra structure investment which raises G to 2,250. How would this increase impact what you have calculated in (a) above? c) Now suppose that the world interest rate rises from 5 to 10 percent (G is again 2,000). Would the change in interest have the same impact on National saving and investment? Does it impact the exchange rate? Explain
Question 1 Assume a small scale French farmer sells 100,000 lbs. of milk to a French intermediary company for â¬2.00 per lbs. The intermediary company package the milk in fancy containers and sells it to Danone for â¬3.50 per lbs. Danone uses the milk to produce yogurt in its plant in Seville, Spain, Total output will be 6000 container and each container of yogurt for â¬5.75. How will this string of transactions affect French GDP? How will it affect French GNP? How will it affect Spanish GNP and GDP? Which will be more reflective of the true output for each economy? Explain
Question 2
Consider an open economy described by the following equations (all figures in millions of dollars): Y = C + I + G + NX Y = 8,000 (current value of output) G = 2,000 T = 1,000 + .1(Y) C = 450 + 0.75 (Y â T) I = 2,000 â 40 r NX = 700- 600É (É is the exchange rate) r = r* = 5 a) What is the current state of this economy in term of national saving, investment, the trade balance and the equilibrium exchange rate? b) Suppose government approve an infra structure investment which raises G to 2,250. How would this increase impact what you have calculated in (a) above? c) Now suppose that the world interest rate rises from 5 to 10 percent (G is again 2,000). Would the change in interest have the same impact on National saving and investment? Does it impact the exchange rate? Explain
