Chapter 34 Homework

The U.S. economy records the transactions in the table. Then government expenditure increases by ​$200 ​billion, but​ taxes, saving, and investment remain the same. Calculate the current account balance before and after the increase in government expenditure. Before the increase in government​ expenditure, the current account balance is negative 500−500 billion dollars. After the increase in government​ expenditure, the current account balance is nothing billion dollars. Item ​(billions of​ dollars) Imports of goods and services 2,500 Interest paid to the rest of the world 600 Interest received from the rest of the world 450 IncreaseIncrease in U.S. official reserves 10 Government sector balance −100 Saving 1,800 Investment 2,050 Net transfers 0

-500 (Interest received - Interest paid + (Savings - investments) + (Government sector balance) ) -700 (-500 -200)

The graph shows the supply curve of U.S. dollars. Draw a new supply curve that shows the effect of an increase (or fall) in the U.S. demand for imports. Label it. A change in the expected future exchange rate changes the supply of U.S. dollars​ ______, and a change in U.S. demand for imports changes the supply of U.S. dollars​ ______.

S1 = Line underneath S; If demand decreases (or rises) then a line above S ​today; today

The table gives some items from the national income and product accounts. Calculate the government sector​ balance, the private sector​ balance, and net exports The government sector balance is

The government sector balance is equal to net taxes minus government expenditures on goods and services. = 350 150 500 (private sector - government sector balance)

The table gives some data that describe the economy of Atlantis in 2020. Net transfers and net interest are zero. Calculate the current account​ balance, the capital and financial account​ balance, the government sector​ balance, and the private sector balance. Item ​(billions of Atlantis​ dollars) Government expenditure 200 Saving 100 Increase in official reserves of Atlantis 5 Net foreign investment in Atlantis 50 Net taxes 150 Investment 125 The current account balance is The capital and financial account balance is The government sector balance is The private sector balance is

X−M ​= (T−G​) + (S−I​),which is​($150 billion−​$200billion) +​($100 billion−​$125 billion) = −​$75 billion. Account Balance (-75) plus Official Reserves (The increase in official reserves of Atlantis is​ $5 billion, so the official settlements account balance is −​$5 billion.) = -80 The government sector balance equals net taxes minus government​ expenditure, which is​ $150 billion−​$200 billion​ = −​$50 billion. -25

Month Exchange Rate ​(yuan per U.S.​ dollar) - Reserves (billions of​ dollars) March 2019 6.71- 3,109 August 2019 7.06 - 3,126 The changes in​ China's foreign exchange reserves during the six months to August 2019August 2019 indicate that the​ People's Bank has bought U.S. dollars to prevent the yuan from appreciating in​ ___ of the months and overall has​ ______ U.S. dollars.

four; bought $17.0 billion

Net exports equal the​ ______.

private sector balance plus the government sector balance

The supply of U.S. dollars in the foreign exchange market increases if​ ______.

the U.S. interest rate differential decreases

The quantity of U.S. dollars that traders plan to buy in the foreign exchange market in a given period of time depends on many​ factors, the main ones being​ ______. When the exchange rate​ rises, the​ ______ in the foreign exchange market decreases because of the​ ______.

the exchange​ rate, interest rates in the United States and other​ countries, and the expected future exchange rate quantity of U.S. dollars​ demanded; exports effect and the expected profit effect

Month - Exports - Imports (billions of​ dollars) June 2019 136.9 - 212.2 July 2019 138.2 - 211.8 August 2019 138.6 - 213.0 September 2019 136.8 - 208.6 In the graph to the​ right, the ___ line is exports and the __ line is imports. In September 2019​, exports​ ________, imports​ _________, and the gap between them​ __________ ,

​ Blue; Red decreased; decreased​; narrowed

The U.K. pound is trading at 1.82 U.S. dollars per U.K. pound. There is purchasing power parity at this exchange rate. The interest rate in the United States is 2 percent a year and the interest rate in the United Kingdom is 3.03.0 percent a year. Which country more likely has the lower inflation​ rate? How can you​ tell? The country which likely has the lower inflation rate is​ ______ because​ ______.

​the United Stated; people expect the pound to depreciate