midterm 2010

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Department
Economics
Course
ECO365H5
Professor
Margarida Duarte
Semester
Fall

Description
UNIVERSITY OF TORONTO MISSISSAUGA ECO365 (L0101) - International Monetary Economics Prof. Margarida Duarte Fall 2010 Term Test - October 8, 2010 Instructions: This is a closed-book exam and the use of calculators is not permitted. Read the entire question before answering. Make all the extra assumptions you consider necessary, but make sure to state them clearly. Be concise in your answers. Good luck! 1. (30 points) During 2008, the value of expenditures by households of a ▯ctitious economy on ▯nal goods and services was 100. The government spent 50 on ▯nal goods and services. Firms invested 75. Consumers invested 50 in the domestic stock market. Domestic ▯rms exported (▯nal and intermediate) goods and services in the amount of 20 (15 in ▯nal goods and services and 5 in intermediate goods and services). Imports totalled 25. a. (10 points) Gross National Product is a measure of a country’s overall economic output. GNP accounts avoid double counting by including only the value of ▯nal goods and services sold in the market. Should the measures of exports and imports used in GNP accounts therefore be de▯ned to include only ▯nal goods and services? Explain. b. (10 points) What is the value of GNP of this economy in 2008? What are the values of the expenditure components of GNP in 2008 (that is, consumption, investment, government consumption, exports, and imports)? c. (5 points) What is the balance of the current account in 2008? What can you say about the change in this country’s net foreign wealth during this period? d. (5 points) What can you say about the relationship between investment and national saving in this economy in 2008? 2. (10 points) From the New York Times (June 20, 2010): \Rise in Value of [Chinese] Currency to Be Slow, China Insists." a. (5 points) Express the statement above in terms of the change (appreciation or depre- ciation) in the U.S. dollar price of one unit of Chinese currency (called Yuan). b. (5 points) Taking everything else as given, how does a rise in the value of the Yuan a▯ect the price of Chinese imports in the United States and the price of U.S. exports in China? 1 3. (35 points) Consider a Canadian investor with 1000 dollars to place in a
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