Suppose there was a substantial increase in political instability in the rest of the world. What would be the effects on the U.S. current account? Explain
What will be an ideal response?
Increased instability in the rest of the world would lead to capital flight out of the unstable areas. This will mean the capital account balance will be more in surplus and the current account balance more in deficit.
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If German imports of French products are very important in determining the volume of German exports to France, we would expect the actual German spending multiplier to be larger than 1/(marginal propensity to save + marginal propensity to import)
a. True b. False Indicate whether the statement is true or false
Studies show that the supply curve for bananas has shifted. All of the following could be possible explanations for the shift, except one. Which is the exception?
a. The price of land for growing bananas has risen. b. Weather conditions in banana-growing countries have worsened. c. The price of apples has fallen. d. The price of bananas has risen. e. The salaries paid to banana growers has risen.
How does an increase in a country's exchange rate affect its balance of trade?
A) An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade. B) An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade. C) An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade. D) An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade.
________ refers to the fact that both human and financial capital leave developing countries in search of a higher rate of return.
A. Capital flight B. Urbanization C. Outsourcing D. Divestiture