Assume that a nation initially has an output level of 150 units per period and that consumption is also 150 (there is no investment or government spending). Suppose there is a temporary (i.e. one-period) increase in GDP of 16% in period 0. Assume the country has access to global financial markets with an interest rate of 8%. Assume an infinite time horizon for all questions. The United States has experienced large and growing current ccount deficits for mo

Assume that a nation initially has an output level of 150 units per period and that consumption is also 150 (there is no investment or government spending). Suppose there is a temporary (i.e. one-period) increase in GDP of 16% in period 0. Assume the country has access to global financial markets with an interest rate of 8%. Assume an infinite time horizon for all questions. The United States has experienced large and growing current ccount deficits for mo

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter31: Open-Economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 4PA

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7. For each of the following, specify whether the foreign direct investment is hori- zontal or vertical; in addition, describe whether that investment represents an FDI inflow or outflow from the countries that are mentioned. a. Vodafone (a U.K.-based company) plans to improve its network and services in Romania after the results in this market lagged behind other countries. b. General Electric (an American company) buys Alstom (another American company) energy assets. c. Exxon (an American company) plans the construction of new delayed coker unit in Belgium. d. PetroChina (a Chinese company) plans to invest in global oil and natural gas assets in a venture in Western Australia.
9. Consider savings-investment diagrams assuming that there are two countries in the world, A and B. Initially, both countries are identical, i.e., they have the same supply of savings and demand for investment. Therefore, even as open economies, they both have balanced current accounts, i.e., neither has a deficit or surplus. Now assume that in country A, the government increases the budget deficit, shifting the supply of savings to the left. If all other curves (A s investment demand, B s savings supply, B s investment demand) stay the same, what will the effect of the increase in A's budget deficit? a. Country B will have a CA surplus. b. Country A will have a KFA deficit. c. Investment in country B will increase. d. The world real interest rate will fall.
Explain how the following transactions would affectU.S. net capital outflow. For each transaction, statewhether it represents direct investment or portfolioinvestment.a. An American cellular phone company establishesan office in the Czech Republic.b. Harrods of London sells stock to the GeneralMotors pension fund.c. Honda expands its factory in Marysville, Ohio.d. A Fidelity mutual fund sells its Volkswagen stockto a French investor.
Explain it correctly I upvote
is it true or false or uncertain, explain ?
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Exercise 1.7 Indicate whether the statement is true, false, or uncertain and explain why. 1. The net foreign asset position of South Africa in 2010 and 2011, respectively, was -70.5 billion USD and -19.7 billion USD. The current account in 2011 was -10.1 billion USD. There must be an error in the official numbers. The correct figure should be a net international investment position of -80.6 billion USD in 2011. 2. The fact that the United States made large valuation gains on average over the past 40 years means that the rest of the world as a whole made equally large valuation losses. After all, this is a zero sum game.
Consider the Inter-temporal Model with two time periods, t=0 and t=1. Home is a small open economy that can borrow and lend in the first period at the world real interest rate of 5%. In the first period, output is Yo = 100 and in the second period Y1 = 100. The country wants to smooth consumption as much as possible. The country ended period t=-1 with positive external assets, W-1 = 50. %3D What is the value of the current account in period O and period 1? Also, what is the value of net factor income from abroad in period 1? What is the value of the trade balance in period O and period 1?
do question e d f thank you