Answer the following questions briefly
(a) Is it possible for each nation to have BOP surpluses? Explain.
(b) What is the "statistical anomaly" that imparts a bias to trade balances?
(c) Is it correct to argue that deficit countries are harmed while surplus countries benefit by international free trade?
(d) How is the balance of payments linked to national saving and investment?
(a) No. There is a globally balanced trade.
(b) Data collection. Exports are recorded when goods are shipped while, imports are recorded upon receipt. Because there are always goods in transit from the exporter to importer, if we sum the BOT for all countries we will realize a global trade surplus.
(c) No. If trade between nations is voluntary then it is difficult to make such an argument.
(d) If Y = C + I + G + X, then X = (Y - C - G) - I. (Y - C - G) is national saving so the current account (X) equals national saving minus investment.
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The interest rate on long-term bonds is somewhat higher than suggested by the expectations theory because
A) the expectations theory doesn't account for taxes. B) a risk premium exists. C) an inflation premium must be added to long-term bonds. D) the Fed can only control short-term interest rates.
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What will be an ideal response?
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a. Short-run aggregate supply shifts right. b. Short-run aggregate supply shifts left. c. Aggregate demand shifts right. d. Aggregate demand shifts left.