ECON 4040e Test #2 Review
What are the three basic types of imperfect market structure?
1. Monopoly 2. Oligopoly 3. Monopolistic Competition
4 Major Groups of Arguments for Protection for Industries:
1. Retaliation Argument 2. Infant Industry Argument 3. Labor Argument 4. National Security Argument
What are the two necessary conditions for dumping to occur?
1. imperfect competition exists 2. markets are segmented
A country has a comparative advantage in the production of a good because: A. its endowments of production inputs determine the relative costs of products. B. products made in industries with strong unions are bettter made. C. its political leaders give incentives to its industrial leaders toward the most profitable industries, such as green energy. D. its people believe in free enterprise, which ensures productive industries, such as technology products.
A
A product is produced in a monopolistically competitive industry with economies of scale. If this industry exists in two countries, and these two countries engage in trade one with the other, then we would expect: A. that this trade will lead to greater product differentiation. B. neither country will export this product since there is no comparative advantage. C. the country with lower production costs will export the product. D. the country with a relative abundance of factor inputs consistent with the factor intensity of the product will export this product.
A
A counter-example to the Stolper-Samuelson theorem has firms using more skilled labor as it becomes more expensive, and less unskilled labor as it become less expensive, even if the firms have time to adjust their labor mix. How can this possibly be? A. Broader technology applications require more skilled labor and less unskilled labor. B. Skilled labor is an inferior good, as defined in microeconomics, hence higher price means higher demand. C. Unskilled labor is an inferior good, as defined in microeconomics, hence lower price means lower demand. D. Both B and C.
A
China has pegged its currency against the U.S. dollar. If demand for dollars decreases A. there is pressure for the U.S. dollar to depreciate. In this setting, China has to purchase dollars to maintain its peg. B. there is pressure for the U.S. dollar to appreciate. In this setting, China has to purchase dollars to maintain its peg. C. there is pressure for the U.S. dollar to appreciate. In this setting, China has to sell dollars to maintain its peg. D. there is pressure for the U.S. dollar to depreciate. In this setting, China has to sell dollars to maintain its peg.
A
External economies of scale occur when average costs of a firm: A. fall as the industry grows larger, but may or may not rise as the representative firm grows larger. B. fall as the representative firm and industry grows larger. C. remain constant. D. rise as the industry grows larger.
A
In the debate on fixed versus floating exchange rates, the strongest argument for a floating rate is that it frees macroeconomic policy from taking care of the exchange rate. Why is this also the weakest argument? A. The freeing of monetary policy from the task of maintaining an exchange rate creates a lack of external discipline on monetary policy and leads to an over reliance on inflationary policies to satisfy domestic economic needs. B. The domestic money supply is a captive of the need to maintain sufficient reserves to be able to supply any excess demand for foreign exchange. C. The needs of a fixed exchange rate system can be in conflict with the needs of the domestic economy. D. Fixed exchange rate systems require the monetary authority to closely monitor the exchange rate.
A
In general, a country whose economy is dependent on an imported resource and whose goal is to minimize the shock that the resource can cause to their economy should adopt an exchange rate system: A. that allows their currency to float in the market. B. that fixes or pegs their exchange rate to the currency of the country whose resource they import. C. Don't adopt a system; adopt the currency of the of the country whose resource they import (dollarize). D. None of the above; the country should develop substitutes for the imported resource.
A
Suppose the "Effective Rate of Protection" for Brazilian automobile producers is calculated to be minus−60%. This result indicates that: A. Brazilian automobile producers would be better off if Brazil adopted free trade for all parts and final goods. B. Brazilian automobile producers would be better off if Brazil increased its tariffs on both imported automobile parts and imported cars by 60% each. C. Brazilian automobile producers would be better off if Brazil increased its tariffs on imported automobile parts. D. there is a flaw in the calculation. The effective rate of protection is always positive.
A
The Ricardian model of international trade makes predictions about actual international trade flows that: A. are supported with qualification by the empirical evidence. B. are supported without qualification by the empirical evidence. C. are contradicted by the empirical evidence. D. cannot be evaluated with empirical evidence.
A
The biggest disadvantage of a fixed exchange rate is the A. tradeoff between supporting the exchange rate and maintaining economic growth B. increased probability of high inflation. C. tradeoff between supporting the exchange rate and adjusting the trade balance. D. increased probability of a trade deficit. E. tradeoff between supporting the exchange rate and maintaining a balanced budget.
A
The simultaneous export and import of textiles by India is an example of: A. intraindustry trade. B. interindustry trade. C. increasing returns to scale. D. imperfect competition.
A
The two industries most commonly receiving protection are: A. agriculture and clothing. B. agriculture and steel. C. automobiles and pharmaceuticals. D. pharmaceuticals and steel.
A
Under a fixed exchange standard, if the domestic demand for foreign exchange increases: A. the central monetary authority must meet the demand out of its reserves. B. inflation will increase. C. the fixed exchange standard will breakdown. D. the domestic currency must be depreciated. E. the central monetary authority must increase the supply of domestic money.
A
What is the effect of a currency devaluation under fixed exchange rates in the short run? A. An increase in exports. B. A decline in foreign reserves. C. An increase in imports. D. A decline in output.
A
Which of the following are true statements about intra-industry trade? A. The majority of U.S. and European trade is intra-industry trade. B. Low values on the Grubel-Lloyd index are associated with high levels of intra-industry trade. C. Intra-industry trade is especially common in agricultural sectors. D. All of the above.
A
When the dollar is worth less in relation to currencies of other countries (for example relative to the Japanese Yen in the diagram to the right), are you more likely to buy American-made or foreign-made electronics?
American (domestic) products
A contract that contains a promise that a specified amount of foreign currency will be delivered on the specified date in the future is traded in which of the following? A. The commodities market. B. The forward market. C. The spot market D. None of the above. E. All of the above.
B
A managed floating exchange rate refers to: A. A fixed exchange rate that changes once a year. B. An exchange rate that is not pegged, but does not float freely. C. Countries participating in the euro. D. Any hybrid exchange rate system.
B
After the breakdown of the Bretton Woods system, the dominant exchange rate regime in the U.S. was: A. a fixed rate. B. a managed float. C. a crawling peg. D. a clean float.
B
Compared with free trade, large countries may increase national welfare when they place a tariff on imports. What unique aspect of large countries, explains this conclusion? Large countries: A. have large numbers of domestic producers who can expand substantially when they are protected by tariffs. B. reduce the world price of the import when they levy a tariff. C. are less likely to face tariff retaliation by trade partners. D. All of the above.
B
If the U.S. dollar depreciates in terms of the Euro: A. European goods would be cheaper for Americans. B. American goods would be cheaper for Europeans. C. Americans would have to pay fewer dollars for one Euro. D. The relative price of U.S. exports would rise.
B
In an open economy holding GNP and consumption spending constant and where private savings equals domestic investment, a government budget deficit must be matched by: A. a current account surplus B. a current account deficit C. a current account balance D. a positive difference between domestic exports and imports
B
In the current Post-Industrial economy, international trade in services (including banking and financial services): A. is relatively stagnant B. is relatively small C. does not exist D. dominates world trade
B
In the specific factors model, a country's comparative advantage is determined by: A. industry research and development activity which helps differentiate firms into specific industries. B. the country's factor endowments relative to its trading partners. C. relative industry size and capacity in each specific industry. D. relative opportunity costs across countries, as in the Ricardian trade model.
B
Internal economies of scale: A. are more likely to be associated only with high-tech or complex products such as robotics. B. are more likely to be associated with an imperfectly competitive industry. C. are more likely to be associated with a perfectly competitive industry. D. can never form the basis for international trade.
B
Suppose Canada exports cars and imports furniture. This is an example of: A. unbalanced trade, since cars are more valuable than furniture. B. inter-industry trade. C. intra-industry trade. D. monopolistically competitive trade.
B
Suppose a bond issued by the European Central Bank and denominated in euros pays 3% per year. Today the exchange rate is 1.19 dollars per euro. It is expected that the exchange rate in one year will be 1.31 dollars per euro. What is the annual dollar return on this bond? A. -6% B. 13% C. 3% D. 15%
B
Suppose land is the specific factor for rice, while capital is the specific factor for appliances. If New Zealand exports appliances and imports rice, the specific factors setting implies that trade causes: A. the income of New Zealand capital owners to fall. B. the income of New Zealand capital owners to rise. C. the purchasing power of New Zealand capital and land owners will both rise due to the reduction in the cost of consuming rice. D. the income of New Zealand land owners to rise.
B
Under a Gold Standard: A. Prices are fixed. B. The exchange rate is fixed. C. Interest rates are fixed. D. All of the above.
B
Which of the following are true statements about intra-industry trade? A. Intra-industry trade is especially common in agricultural sectors. B. The majority of U.S. and European trade is intra-industry trade. C. Low values on the Grubel-Lloyd index are associated with high levels of intra-industry trade. D. All of the above.
B
Which of the following is not a positive of having a large trade deficit? A. A large trade deficit allows for a higher level of investment than possible solely from domestic savings. B. A large trade deficit accumulates foreign debt that must be serviced in the future. C. A large trade deficit can signal that foreigners have confidence in the current set of economic policies. D. A large trade deficit can signal the positive expectations of the future prospects of the economy. E. All of the above are positives. F. None of the above are positives.
B
Which of the following represents direct foreign investment? A. A deposit that an American tourist makes at a Swiss bank to open an account. B. Intel moves part of its production to a plant in Malaysia. C. A purchase by an Italian company of Microsoft stock on the New York Stock Exchange. D. An American hedge fund buys Russian government bonds.
B
Which of the following statements about off-shoring and outsourcing is true? A. off-shoring and outsourcing have the same definition B. off-shoring is the movement of some or all of a firm's activities to a location outside the home country; outsourcing is the reassignment of activities to another firm, either inside or outside the home country C. the effects and extent of off-shoring of services are very well understood since most countries collect the necessary types of data; the effects and extent of outsourcing of services is not very well understood D. off-shoring is the reassignment of activities to another firm, either inside or outside the home country; outsourcing is the movement of some or all of a firm's activities to a location outside the home country
B
How do economies of scale give rise to international trade? A. Economies of scale enhance resource differences between countries. B. International trade occurs because economies of scale make a comparative advantage. C. International trade occurs because economies of scale transfer knowledge across countries. D. International trade occurs because multi-national corporations have economies of scale. These economies of scale are _____________________ economies of scale.
B Internal
How does a fall in the value of the pound sterling as shown in the diagram to the right affect British consumers? A. Domestic interest rates increase. British consumers find it more expensive to borrow. B. Foreign goods are now relatively more expensive. British consumers are hurt. C. Foreign goods are now relatively cheaper. British consumers will benefit. D. Domestic goods are now relatively more expensive. British consumers are hurt. How does this fall in the value of the pound affect American exporters?
B Makes them worse off
(see question #14 of homework 4 for graph) The persistence of established patterns of specialization (in this case Canada's control of the world puck industry), even those started by historical accident, illustrates the (potential) significance of A. declining economies. B. internal economies. C. external economies. D. emerging economies.
C
A country, such as the U.S., is allowed to use anti-dumping duties if the price a foreign exporter: A. charges for the products it sells in the U.S. is more than the price charged in the exporters market. B. falls over time, and U.S. firms are harmed by import of the product. C. charges for the products it sells in the U.S. is less than the price charged in the exporters market, and U.S. firms are harmed by import of the product. D. charges for the products it sells in the U.S. is less than the price charged in the exporter's market.
C
Countries official reserve assets are mostly composed of: A. physical goods which can be bartered in emergency situations. B. the country's own currency, stocks, and bonds. C. other countries' currencies. D. the country's own currency.
C
If a U.S. firm moves some of its assembly operations to the firm's foreign affiliate located in Mexico, this is an example of A. outsourcing. B. both outsourcing and off shoring. C. off-shoring. D. neither outsourcing nor off shoring.
C
If a U.S. firm moves some of its assembly operations to the firm's foreign affiliate located in Mexico, this is an example of A. outsourcing. B. neither outsourcing nor off shoring. C. off-shoring. D. both outsourcing and off shoring.
C
If an industry is characterized by external economies of scale: A. the market is likely to be served by an oligopoly of firms. B. firm costs decline as firms increase in size. C. firm costs decline as the industry grows in size. D. monopolistic competition will follow.
C
If the interest rate on a deposit in Euros is 6% per year, and the Euro is expected to depreciate against the U.S. dollar by 1%, what does the interest parity condition imply about the interest rate on the deposit in U.S. dollars? A. 6% B. 7% C. 5% D. 4%
C
Internal economies of scale occur when the average costs of the firm: A. fall for a given firm as the industry grows larger. B. rise for a given firm as the industry grows larger. C. fall as the representative firm grows larger. D. rise as the representative firm grows larger.
C
The labor argument for tariffs, argues that it is unfair for a country to face imports from countries that have lower wages. The problem(s) with this argument: A. it ignores the fact that tariffs or quotas are an expensive method of saving jobs. B. is that it ignores the fact that cross country wage differences reflect productivity differences. C. Both A and B. D. None of the above. The labor argument is solid.
C
The Stolper-Samuelson theorem predicts that trade will cause countries with relatively scarce supplies of unskilled labor: A. to see wage decreases for unskilled labor, since unskilled labor will be used less in making exports. B. to see wage increases for unskilled labor, since the supply curve has moved left. C. to see wage decreases for unskilled labor, since unskilled labor will be used less in making imports. D. to see wage increases for unskilled labor, since the demand curve (relative to skilled labor) has moved right.
C
Under free trade, a digital SLR camera sells for $1000. If the U.S. imported the parts to produce a digital SLR, the free trade price of the parts would be $550. U.S. digital SLR producers will receive the highest "Effective Rate of Protection" if: A. the U.S. introduces a 25% tariff on imported parts that are used to produce digital SLR cameras. B. the U.S. introduces a quota limit on imported parts that are used to produce digital SLR cameras. C. the U.S. introduces a 25% tariff on imported digital SLR cameras. D. the U.S. introduces a 25% tariff on both digital SLRs and on the imported parts that are used to produce digital SLR cameras.
C
Which is true? A. All industrialized countries that peg today peg to the US dollar. B. All developing countries that peg today peg to the US dollar. C. Some countries peg to a basket of currencies. D. No countries peg to the dollar because the dollar floats.
C
Which of the following is NOT a valid explanation for the failure of the data to support PPP theory? A. Differences in price level measurements across countries B. Trade barriers C. Differences in monetary policies across countries D. Transportation costs
C
Which of the following is not part of the definition for Gross National Product? A. The market value... B. ...of all final goods and services... C. ...produced within a country's borders... D. ...within a given period of time.
C
Which of the following is not the reason for external economies of scale? A. Knowledge spillovers. B. Specialized suppliers of intermediate goods. C. Large fixed costs. D. Labor market pooling.
C
Why do internal economies of scale lead to imperfectly competitive industries? A. There are barriers to entry due to large fixed costs. B. This is an observation based on measurable data. C. Large firms have cost advantages over small firms. D. Patent laws prevent firms from entering the market.
C
___________________ advantage is the foundation of our understanding of the gains from trade and the potential income distribution effects of trade.
Comparative
Identify the following as debit or credit entries in the Balance of Payments: An increase in export Expenditure is a _________________ to the _________________.
Credit Current Account
Identify the following as debit or credit entries in the Balance of Payments from the point of view of the United States: The U.S. government sells gold for dollars. The transaction is recorded as a __________________ in the __________________ account.
Credit Financial
Identify the following as debit or credit entries in the Balance of Payments: An increase in foreign Assets held in the U.S is a ______________ to the _________________.
Credit Financial Account
An import quota: A. Is always more costly to a country than an import tariff. B. Is always less costly to a country than an import tariff. C. Has the same effects on welfare as an import tariff. D. Generates rents that might go to foreigners.
D
Examples of demand pull factors that influence international migration include: A. the cost of moving to the destination country. B. the probability of finding a job in the destination country. C. the wage a worker may earn in the destination country. D. All of the above.
D
External economies of scale: A. tend to result in large profits for each firm and an industry with relatively few firms. B. lead to the creation of a single large monopoly. C. cannot be associated with a perfectly competitive industry. D. are more likely to be associated with a perfectly competitive industry.
D
GNP (Gross National Product) equals GDP plus: A. indirect business taxes. B. a statistical discrepancy. C. the capital consumption allowance. D. net receipts of factor income from the rest of the world and net unilateral transfers.
D
Gross National Product represents the sum of the following expenditure categories: A. savings, investment, tax collections, and government purchases. B. consumption, investment, government purchases, and the capital account balance. C. consumption, investment, tax collections, and the current account balance. D. consumption, investment, government purchases, and the current account balance.
D
If Heckscher-Ohlin is taught in all the textbooks, why don't more countries utilize its concepts and conclusions? A. Ricardian theory is more important and thus more widely used. B. With few exceptions, it pretty much is utilized. C. Politicians dismiss it as too theoretical and esoteric, making it difficult to implement. D. Measurement errors make it difficult to test.
D
Suppose again that furniture production is more capital-intensive relative to clothing production, which is more labor-intensive. If the relative price of furniture to clothing rises, this will: A. raise the income of labor owners. B. lower the incomes of both labor and capital owners. C. raise the income of both labor and capital owners. D. raise the income of capital owners.
D
The French capital stock is 15 machines, while the Italian capital stock is 10 machines. This information allows you to conclude that: A. France is capital abundant. B. Italy is capital scarce. C. Italy is labor abundant. D. None of the above.
D
The creation of an integrated market as a result of international trade results in A. more firms, each operating at a larger scale. B. lower prices. C. a wider range of choices for consumers. D. all of the above
D
The opposition to expanded trade comes from people who fear that it will: A. increase the demand for their labor and capital and cause an inflationary gap. B. reduce the demand for their labor and increase the demand for their capital and lead to market failure. C. reduce the demand for their labor or capital and lead to an increase in income. D. reduce the demand for their labor or capital and lead to a decline in income.
D
When the United States signed a free-trade agreement with Canada (1989), no one thought twice about it. When the agreement with Mexico was signed (1994), there was significant opposition. The concepts of interindustry and intraindustry trade can explain the differences in opposition to the two trade agreements in the following manner: A. Given the productivity, technology, and factor endowment similarities between the U.S. and Canada, trade between the two is intraindustry, and such trade generally yields greater benefits than interindustry trade. B. Substantial productivity, technology, and factor endowment differences between the U.S. and Mexico make trade between them interindustry, and this type of trade is seen as more threatening to jobs and firms. C. Trade between the U.S. and Mexico is interindustry trade, and such trade is comparative advantage-based. While consumers get the benefit of lower import prices with such trade, they also face the hardship of paying higher prices for export goods. D. All of the above. E. A and B only.
D
Where there are economies of scale, the scale of production possible in a country is constrained by: A. the size of that country. B. the size of the domestic market. C. the aggregate size of all trading partner countries. D. the combined size of the domestic and foreign market.
D
Which of the following is true? A. If an exchange rate is allowed to vary across a fixed basket of currencies, it is called a hard peg. B. If an exchange rate is not allowed to vary against the target currency, it is called a soft peg. C. Any exchange rate policy other than completely flexible exchange rate systems is extremely uncommon today for currencies. D. A soft peg is when a currency's exchange rate is only allowed to fluctuate within a set band. E. If an exchange is only allowed to fluctuate within a set band, it is considered to be a flexible exchange rate system.
D
Identify the following as debit or credit entries in the Balance of Payments from the point of view of the United States: A Japanese firm in Tennessee buys car parts from a subsidiary in Malaysia. The transaction is recorded as a __________________ in the __________________ account.
Debit Current
Identify the following as debit or credit entries in the Balance of Payments from the point of view of the United States: A migrant worker in California sends $500 home to his village in Mexico. The transaction is recorded as a __________________ in the __________________ account.
Debit Current
Identify the following as debit or credit entries in the Balance of Payments from the point of view of the United States: An American church donates five tons of rice to the Sudan to help with famine relief. The transaction is recorded as a __________________ in the __________________ account.
Debit Current
Identify the following as debit or credit entries in the Balance of Payments from the point of view of the United States: An American retired couple flies from Seattle to Tokyo on Japan Airlines. The transaction is recorded as a __________________ in the __________________ account.
Debit Current
Identify the following as debit or credit entries in the Balance of Payments: An increase in income Payments is a ___________________ to the ___________________.
Debit Current Account
Identify the following as debit or credit entries in the Balance of Payments from the point of view of the United States: An American mutual fund manager uses the deposits of his fund investors to buy Brazilian telecommunication stocks. The transaction is recorded as a __________________ in the __________________ account.
Debit Financial
Identify the following as debit or credit entries in the Balance of Payments from the point of view of the United States: The Mexican government sells pesos to the United States Treasury and buys dollars. The transaction is recorded as a __________________ in the __________________ account.
Debit Financial
Identify the following as debit or credit entries in the Balance of Payments: An increase in U.S. Assets held abroad is a ____________________ to the ____________________.
Debit Financial Account
Identify the following as debit or credit entries in the Balance of Payments: An increase in official Reserve Assets is a ___________________ to the ___________________.
Debit Financial Account
Does a firm with price setting power face a downward-sloping demand curve or a horizontal demand curve?
Downward-sloping demand curve
Given that tariffs and quotas cost consumers and that they are a grossly inefficient means for creating or preserving jobs, citizens nevertheless allow these policies to exist because: A. the costs of tariffs and quotas are diffused throughout an entire nation, while the benefits are concentrated. B. they know that petitioning the government to do the right thing is futile. C. incentives to organize around the issue of trade policy are asymmetric. D. all of the above. E. A and C only.
E
In a fixed exchange rate system, how do countries address the problem of currency market pressures that threaten to lower or raise the value of their currency? A. If demand rises, countries must fill the excess demand for foreign currency by selling their reserves. B. If demand falls, then countries must increase demand by buying up the excess supply with domestic currency. C. If demand rises, then countries can adjust the value of the exchange rate to the desired level. D. A and B only.
E
In order to improve economic growth, a country should adopt which of the following exchange rate systems? A. Fix their currency to the country that is growing the most. B. Allow their currency to float on the market. C. Adopt a soft peg to the country that is growing the most. D. Adopt the country's currency that is growing the most; e.g., dollarize, or adopt the Chinese renminbi. E. There is no superior system; each country has to decide what is best.
E
What factor(s) can cause private returns from production to be smaller than social returns of production? A. Knowledge spillovers, where firms learn from each other. B. Capital market imperfections, where firms with new and sound ideas are unable to attract financing. C. The inability to coordinate activities between firms, when the success of an industry requires multiple players to enter simultaneously. D. A and B only. E. All of the above.
E
When the social returns from production are larger than the private returns from production: A. Market output is below the social optimum. B. Market output is above the social optimum. C. Prices are too high. D. Prices are too low. E. A and C only. F. B and D only.
E
Which of the following is NOT a problem in the implementation of industrial policies? A. Choosing the industry to target B. The encouragement of rent seeking by firms in other industries C. Knowing the optimum amount of resources to provide the targeted industry D. The benefits are partly captured by foreign firms. E. All of the above are problems.
E
Which of the following is a theoretical justification for targeting the development of specific industries? A. Implement a strategic trade policy. B. Counteract a market failure. C. Punish a foreign competitor. D. All of the above are justifications. E. A and B are justifications only.
E
Nations use four main groups of arguments to justify protection for particular industries. These arguments can be characterized as either economic or noneconomic.
Economic Arguments: The retaliation argument, The infant industry argument, The labor argument, etc. Non-Economic Arguments: The national security argument Not one of 4 major groups of arguments: The mercantilism argument, The revenue argument, etc.
In order for a firm to be able to "dump" a good on a foreign market, it must have market price setting power in which market, home or abroad?
Home
The current account will fall if:
the real exchange rate appreciates or disposable income goes up
We have the following data for a hypothetical open economy: GNP = $14,000 Consumption (C) = $8,200 Investment (I) = $800 Government Purchases (G) = $1,400 What is the value of the current account balance?
$3,600
Given the following Balance of Payment data for a given country: Current Account Balance = $-3,600 Capital Account Balance = $-50 What must be the Financial Account Balance?
$3650
Suppose that you buy, and one year later sell, a foreign (British) bond under the following circumstances: When you buy the bond the exchange rate is $2.00 = £1. You pay £45 ($90) for the British bond. You sell the bond for £50. No interest payment was expected or received. When you sell the bond, the exchange rate is $1.50 = £1. What is your gain or loss in dollars?
-$15
What about an American company that is in the business of importing electronic consumer goods into the United States?
When the dollar is stronger
Are U.S. companies that manufacture semi-conductors happier when the dollar is strong or when it is weak?
When the dollar is weaker
Trade models built exclusively on the idea of comparative advantage have a __________________ record when it comes to predicting a country's trade patterns.
Mixed
Trade models built exclusively on the idea of comparative advantage have a ____________________ record when it comes to predicting a country's trade patterns.
Mixed
We have the following data for a hypothetical closed economy: GNP = $10,000 Consumption (C) = $8,000 Government Purchases (G) = $1,400 Tax Collections (T) = $1,600 What is the value of private savings? What is the value of gov't savings? In this closed economy, what must be the value of investment expenditure?
Private savings = $400 Gov't savings = $200 Investment expenditure = $600
We have the following data for a hypothetical open economy: GNP = $14,000 Consumption (C) = $8,000 Investment (I) = $1,200 Gov't Purchases (G) = $1,600 Tax Collections (T) = $1,600 What is the value of private savings plus public savings? What is the value of the current account balance CA?
Private savings plus public savings = $4,400 Current account balance CA = $3,200