Consider Gaaldine, a similarly fictional country which has no plans to cut off the rest of theworld. Their utility iswhere = 1/1.04. The interest rate is 4 percent, so 1 + r = 1.04.Output is given byΣβt log ctt=0Yt = 1.02ti.e. initial output is 1, and it grows at 2 percent per year.The initial net international investment position of Gaaldine is 0.Their per-period budget constraint is(1+r)at + (1+r) xtwhereat+1 =Yt = Xt + CtatThey must obey the transversaility condition limț→∞ (14r)t= = 0.

The objective of the question is to understand the economic conditions of the fictional country…

Answered: Consider Gaaldine, a similarly…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Describe the concept of capital flight and its potential consequences for a country's economy and financial stability. A) Capital flight refers to the movement of goods and services across international borders, which has no impact on an economy. B) Capital flight involves the rapid outflow of investment and financial assets from a country, potentially leading to a currency crisis, economic instability, and a weakening of the country's financial system. C) Capital flight is a government policy to attract foreign investments. D) Capital flight has no relevance to a country's economy or financial stability.
An open economy with absolute mobility of capital is described as follows: consumption function is given as C = 50 + 0, 8(Y-T). where Y is output, and T is net taxes. Investment function is given as I = 20-10i, where I is nominal interest rate. Government spending G = 20, tax Tx = 10, export Ex 6E + 10, import Im = 22-4E+0,3Y where E - nominal exchange rate (price of foreign currency in terms of domestic currency). For one unit of foreign currency, you can get 3 units of domestic currency. The real money supply is M /P = 50. The demand for real money is described by the following function: L(Y, i) = 0, 5Y-10i. Suppose that the nominal exchange rate is fixed. The government has increased government spending by 10. What is the level of output in the new external and internal equilibrium?
Consider the following small open economy model with production. At dates 1 and 2, the home country receives exogenous fixed endowments y1 and y2 respectively. The home country has access to the international capital market at a fixed interest rate r* at which it can save or borrow. Let the net saving of the home country be s1 and its consumption stream in two periods be given by c1 and c2 respectively.the following maximization problem: Max ln c1 + ln c2 s.t. C1 + S1 = Y1 C2 = C1(1+r*) + Y2 Derive optimal consumption and current account functions and carefully interpret it in terms of a two-period Fisherian graph. Refer to (a). Suppose the home country also has an access to an investment technology which means that if it invests k units at date 1, it produces y2 = Aka units of output in the next period where A >0 and 0 < a< 1 . Modify budget constraints for (a)Derive the optimal investment and saving rules for this economy assuming the same logarithmic utility…
Q2. Introduce Gulf Cooperation Council briefly (when, where founded, members, headquarter, the bodies etc.)
The saving rate (gross domestic saving as a % of GDP) in Singapore, a small open economy, was 48% in 2017 while the investment rate (domestic investment as a % of GDP) was 25%. As a result, there was net outflow of capital from Singapore in 2017. Explain whether the given statement is true, false or uncertain. Start your answer by selecting one of the options – “True”, “False” or “Uncertain” and then provide arguments to justify your selection
Explain how government incentives can have an impact on multinational capital budgeting
part C and D
Consider the following small open economy model with production. At dates 1 and 2, the home country receives exogenous fixed endowments y1 and y2 respectively. The home country has access to the international capital market at a fixed interest rate r* at which it can save or borrow. Let the net saving of the home country be s1 and its consumption stream in two periods be given by c1 and c2 respectively.the following maximization problem: Max ln c1 + ln c2 s.t. C1 + S1 = Y1 C2 = C1(1+r*) + Y2 (a)Derive optimal consumption and current account functions and carefully interpret it in terms of a two-period Fisherian graph. Refer to (a). Suppose the home country also has an access to an investment technology which means that if it invests k units at date 1, it produces y2 = Aka units of output in the next period where A >0 and 0 < a< 1 . Modify budget constraints for (b)Derive the optimal investment and saving rules for this economy assuming the same logarithmic utility…
Solve b
Suppose that the world is comprised of two countries, A and B, that jointly exploit a common pool of a non-renewable natural resource, say oil, whose total stock is Q = 300. Country i's net well-being TS(Qit) in period t (i.e.: social benefit from using the resource net of extraction costs) depends on the quantity of oil Qit that country i extracted in period t from the common pool, where i = A,B. Suppose that oil in these countries is fated to be depleted within two periods: 0 (the present) and 1 (the future), so t = 0,1, and that future well-being is discounted at the rate r = 0.25 (so the discount factor δ=0.8). Also suppose that the marginal surplus value in period t is: ΔTS/ΔQit = 100 - Qit. Find the oil extraction allocation that is efficient from the point of view of the whole world (i.e.: the quantities Qit for i = A,B and t = 0,1 that maximize the present value of the world's surplus value.
A global capital market is the interlinking of various investment exchanges around the world that enable individuals and entities to buy and sell financial securities on an international level. As the complexity and interlinking of the global economy grows, the capital markets follow. Elaborate this definition with suitable examples

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