"Sharp contractions in a country's output and employment invariably result from a crisis in which the country suddenly loses access to all foreign sources of funds." Explain how the current account identity necessitates these contractions
What will be an ideal response?
S - I = CA (Current Account Identity)
Imagine that a country is running a current account deficit (i.e. borrowing from abroad) a certain amount of its GNP when foreign lenders suddenly become scared of default and cut off all new loans. This action causes the current account balance to be at least 0 due to either a rise in saving or a fall in investment (or a combination of both). The required sharp fall in aggregate demand necessarily depresses the country's output dramatically.
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In the above figure, the equilibrium real wage rate is
A) $10 per hour. B) $15 per hour. C) $20 per hour. D) none of the above
In the figure above, the marginal cost of the fifth computer is
A) 0 television sets per computer. B) 4 television sets per computer. C) 20 television sets per computer. D) 35 television sets per computer.
Corporate profits are taxed twice because
A. capital gains are not indexed to the rate of inflation. B. it is economically efficient to reduce the amount of retained earnings. C. the government wants to minimize the amount of tax paid on capital gains. D. taxes are collected on profits before profits are distributed to shareholders.
Use the information provided in Table 7.2 below to answer the question(s) that follow.
Table 7.2Inputs Required to Produce a Product Using Alternative Technologies
Refer to Table 7.2. If the hourly wage rate is $10 and the hourly price of capital is $50, which production technology should be selected?
A. A B. B C. C D. D