1. For this small open economy, output = $25 m, government purchases = $6 m, and net factor payments rw Cd d 5% $12 m $3 m 4% $13 m $4 m 3% $14 m $5 m 2% $15 m $6 m For each rw, calculate national saving, foreign lending, and absorption. Calculate net exports as the difference between output and absorption. What is the relationship between net exports and foreign lending?

Assume an economy has a budget surplus of 1,000, private savings of 4,000, and investment of 5,000. Write out a national saving and investment identity for this economy. What will be the balance of trade in this economy? If the budget surplus changes to a budget deficit of 1000k with private saving and investment unchanged, what Is the new balance of trade In this economy?

Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of 100 billion, total domestic savings of 1,500 billion, and total domestic physical capital investment of 1,600 billion. According to the national saving and Investment Identity, what will be the current account balance? What will be the current account balance if Investment rises by 50 billion, while the budget deficit and national savings remain the same?

Table 23.7 provides some hypothetical data on macroeconomic accounts for three countries represented by A. B, and C and measured in billions of currency units. In Table 23.7, private household saving is SH, tax revenue is T, government spending is G, and investment spending is Calculate the trade balance and the net inflow of foreign saving for each country. State whether each one has a trade surplus or deficit (or balanced trade). State whether each is a net lender or borrower internationally and explain.

If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.

If imports exceed exports, is it a trade deficit or a trade surplus? What about if exports exceed imports?

Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?

Does a higher rate of return in a nations economy, all other things being equal, affect the exchange rate of its currency? If so, how?

What determines the size of a countrys trade deficit?

If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?