Consider a small open economy in equilibrium with a current account deficit. (a)Draw a diagram showing this situation.(b)What happens to national saving, investment, and the current account balance in equilibrium if government expenditures rise temporarily? Show this result in your diagram.
What will be an ideal response?
The diagram must have an initial equilibrium with the quantity of investment exceeding the quantity of national saving, so that the current account balance is negative. The temporary rise in government expenditures causes the desired national saving curve to shift to the left. In equilibrium, national saving declines, investment is unchanged (because the world real interest rate is unchanged), and the current account balance declines.
You might also like to view...
Suppose that all firms in a constant-cost industry have the following long-run cost curve:
c(q) = 4q2 + 100q + 100 The demand in this market is given by QD = 1280 - 2p. Suppose the number of firms in the market is restricted to 80 a. Derive the supply curve with this restriction. Find the market equilibrium price and quantity with the restriction. b. If firms are allowed to buy and sell these permits in an open market, what will be the rental price of permits? Will firm's that own permits make profit? Briefly explain. c. How much deadweight loss is generated by the permit system? Provide a graph showing the region of this deadweight loss. d. Suppose the government abandons the permit system and simply imposes a fixed fee on firms in the market. If the fee is set equal to the permit price you found in c., what will be the equilibrium price, quantity, number of firms and deadweight loss?
In a partnership, legal responsibility for all debts is
A) shared by the partners. B) passed to the shareholders. C) paid by the principle owner. D) handled by the bondholders.
A hidden cost fallacy can be avoided
a. by ignoring the opportunity costs to using a capital b. by ignoring the cost of capital c. by taking all capital costs into account including the cost of equity d. none of the above
If yesterday the U.S. dollar traded for 100 Japanese yen and today 101 yen for the U.S. dollar, we would say
A. that the dollar rose in value relative to the yen. B. that the U.S. dollar fell in value relative to the yen. C. the dollar stayed the same value relative to the yen.