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- In the short run, all of the following are disadvantages of a fixed exchange rate regime except: O A. macroeconomic shocks must be addressed with fiscal policy. O B. open market operations are overused. OC. they can lead to future exchange rate crises. O D. interest rates are constant. According to Robert Mundell, for countries to constitute an optimal currency area, such as adopting a common currency, they must have: O A. a different composition of industries. O B. high factor mobility. O C. similar per capita GDP. O D. all of the above.Which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market? a. A decrease in domestic interest rates O b. An increase in foreign interest rates c. Stable domestic prices while the nation's trading partners are experiencing 10 percent inflation O d. Domestic inflation of 10 percent while the nation's trading partners are experiencing stable pricesIf the United States had a capital and financial account deficit of $50 billion, we could say the United States had Please choose one: O a net imports of $50 billion O b.a current account deficit of $50 billion O c net foreign borrowing of $50 billion OD. acquired net foreign assets of $50 billion.
- a. In the diagram, shift the relevant curve(s) to the show the long-run effect of an increase in the trade deficit, if the accompanying capital account surplus supports investment. Price level LRAS AS X AD Price level GDP b. In the diagram, shift the relevant curve(s) to the show the long-run effect of an increase in the trade deficit, if the accompanying capital account surplus supports consumption. LRAS AS X AD GDPIf U.S. securities pay 6 percent interest, and if Great Britain’s securities pay 8 percent interest, then a. pounds depreciate relative to dollars. b. pounds appreciate relative to dollars. c. Great Britain’s imports will fall. d. Great Britain’s exports will rise.QUESTION 5 Which of the following is associated with a trade surplus? a. Domestic investment exceeds domestic savings. b. Foreign savings is positive. Oc. Domestic savings exceeds domestic investment. Od. Foreign investment is negative. QUESTION 6 Which of the following is considered a capital inflow? Oa. A U.S. citizen's repayment of a loan from a foreign bank Ob.A sale of U.S. financial assets to a foreign buyer Oc. A purchase of foreign financial assets by a U.S. buyer d. A loan from a U.S. bank to a foreign borrower
- II. Trade Accounts. A. The Balance on Goods and Services has been in deficit for years. Assume the U.S. has $400 of goods and services exports. Use a simple flow of trade diagram to illustrate a U.S. Balance on Goods and Services deficit of $50. Foreign. U.S. B. I have argued that the illustration above is incomplete because it requires foreigners to hold American dollars for years and years. This seems unlikely. Use another flow of trade diagram to show how a deficit in the Balance of Goods and Services can be offset somewhere else in the trade accounts. U.S. Foreign. C. A Canadian furniture maker with plants in Canada and the United States, sells $100,000 worth of furniture made in Canada to Americans. They use the money from the sale to purchase $100,000 worth of furniture quality lumber from American suppliers to be used in their Canadian plant. How do these two transactions affect the Balance on Goods and Services? Give a number D. A Canadian furniture maker with plants in…Concerning a country's business cycle, rapid growth of production and employment is commonly associated with: Select one: O a. Small or shrinking trade deficits and current account deficits O b. Large or growing trade deficits and current account deficits Oc. Small or shrinking trade deficits and current account surpluses O d. Large or growing trade surpluses and current account surpluses1. Other things equal, what is the likely impact of a U.S. trade deficit on 1. the current account? 2. foreign savings if domestic investment is greater than domestic saving? 3. foreign savings if domestic investment is less than domestic saving?
- Things to do: Write True if the statement is correct and write False if the statement is incorrect. 1). The home country's balance of payments benefits from the inward flow of foreign earnings. 2). FDI home country's balance can also benefit the of payments if the foreign subsidiary creates demands for home country exports of capital equipment, intermediate goods, and the like. 3). country outward FDI arise Benefits to the home from employment effects. With 4). the balance of payments, positive employment effects arise when the foreign subsidiary creates demands for home country exports. 5). Benefits arise when the home-country MNE learns valuable skills from its exposure to foreign markets that can subsequently be transferred back to the home country. 6). When assessing the costs and benefits of FDI to the home country, keep in mind the lessons of international trade theory. of 7). The balance payments suffers from the initial capital outflow required to finance the FDI. 8). The…Q 1Using the DD-AA model, explain the effects of temporary fiscal and monetary changes performed by a domestic country listed below. For each change, pro- vide diagrammatic explanation and comment on what happens to the nominal exchange rate (under a floating exchange rate regime), domestic output, and domestic CA (current account). (a) Tax raise. (b) Lower domestic money supply. Question 2 For each of the fiscal and monetary changes listed in Question 1, describe one fiscal or monetary policy aiming to maintain full employment level. For the policy you pick, provide a diagrammatic explanation using DD-AA model and comment on what happens to the nominal exchange rate, domestic output, and domestic CA as a result of the policy you choose.D Question 4 If the US$ is stronger, that helps to do what in regards to the US trade deficit O Increase O Decrease O Create a balance of payments surplus O Decreases trade with the weaker currency