The cha pter notes that the rise in the U.S. tradede ficit during the I 980s was due largely to therise in the U.S. budget deficit. On the other hand,the popular press sometimes claims that theincreased trade deficit resulted from a decline inthe quality of U.S. produc ts relative to foreignproducts.a. Assume that U.S. products d id decline in rela tivequality during the 1980s. How did this affect netexports at any given exchange mte?b. Draw a three-panel diagram to show the effect ofthis shift in net exports on the U.S. real exchangerate and trade balance.c. Is the claim in the popular press consist,:,nt withthe model in this chapter? Docs a decline in thequality of U.S. products ha vc any effect on ourstandard of living? (Hin I: Wh,:,n we sell our goodsto foreigners, what do we receive in rcrurn?)
The cha pter notes that the rise in the U.S. trade
de ficit during the I 980s was due largely to the
rise in the U.S. budget deficit. On the other hand,
the popular press sometimes claims that the
increased
the quality of U.S. produc ts relative to foreign
products.
a. Assume that U.S. products d id decline in rela tive
quality during the 1980s. How did this affect net
exports at any given exchange mte?
b. Draw a three-panel diagram to show the effect of
this shift in net exports on the U.S. real exchange
rate and trade balance.
c. Is the claim in the popular press consist,:,nt with
the model in this chapter? Docs a decline in the
quality of U.S. products ha vc any effect on our
standard of living? (Hin I: Wh,:,n we sell our goods
to foreigners, what do we receive in rcrurn?)
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