UNIVERSITY OF TORONTO MISSISSAUGA
ECO365 (L0101) - International Monetary Economics
Prof. Margarida Duarte
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
1 3. (35 points) Consider a Canadian investor with 1000 dollars to place in a