MANKIW: PRINCIPLES OF MACROECONOMICS
8th Edition
ISBN: 9781337801782
Author: Mankiw
Publisher: CENGAGE L
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Chapter 19, Problem 7PA
To determine
The impact of export subsidy on the economy.
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Suppose the United States decides to subsidize the export of U.S. agricultural products, but it does not increase taxes or decrease any other government spending to offset this expenditure. Using a three panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this U.S.policy affects the number of imports, exports, and net exports.
Suppose the United States decides to subsidize the export of U.S. agricultural products, but it does not increase taxes or decrease any other government spending to offset this expenditure. Using a three-panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this U.S. policy affects the amount of imports, exports, and net exports.
The following question focuses on the exchange rate between Mexican pesos and U.S. dollars, defined as the number
of Mexican pesos you must pay for one dollar.
Suppose that incomes decrease in Mexico, causing Mexican consumers to purchase fewer U.S.-made goods and
services. How does this affect the peso-dollar exchange rate? Drag the appropriate curve(s) on the following graph to
illustrate how this change affects the market for dollars.
Tool tip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move the curve and
it snaps back to its original position, just try again and drag it a little farther.
EXCHANGE RATE (Pesos per dollar)
Supply
Demand
FOREIGN EXCHANGE IMIlions of dollars)
A decrease in incomes that causes Mexican consumers to buy fewer U.S.-made goods and services will cause the
Mexican peso to
relative to the dollar,
appreciate
depreciate
Chapter 19 Solutions
MANKIW: PRINCIPLES OF MACROECONOMICS
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- Suppose that Pakistani government is considering an investment tax credit, which subsidizes domestic investment.Using a three panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this policy affects the amount of imports, exports, and net exports.arrow_forwardIs this correct? Now suppose that a country is experiencing balanced trade. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).arrow_forwardIs it better for a country to export more or to import more? Moreover, what is the impact of trade surplus (exporting more than importing) and trade deficit (importing more than exporting) on GDP, employment, and the exchange rate of the country's currency?arrow_forward
- The graph represents a foreign exchange market and shows the supply and demand for Median Earth's currency, the shilling. The price of a shilling is stated in terms of Normandy's currency, the doubloon. The horizontal axis shows the quantity of shillings that are desired and offered for exchange. The exchange rate in doubloons per shilling is measured on the vertical axis. Answer the questions based on the graph.arrow_forward. Suppose thatY =Y, NX T in the U.S. Using the large open economy model, illustrate and explain how the policymakers, using a combination of monetary, fiscal, and trade policies, can reduce the trade deficit, decrease the government's budget deficit, and increase the level of domestic investment, while keeping Y at Y and without changing the exchange rate.arrow_forwardWould each of the following transactions be includedin U.S. net exports or in U.S. net capital outflow?Indicate whether it would represent an increase or adecrease in that variable.a. An American buys a Sony TV.b. An American buys a share of Sony stock.c. The Sony pension fund buys a bond from theU.S. Treasury.d. A worker at a Sony plant in Japan buys someGeorgia peaches from an American farmer.arrow_forward
- In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy reduced imports A. of steel into the United States and increased U.S. exports of other goods by an equal amount. B. into the United States and made the net supply of dollars in the foreign exchange market shift right. C. of steel into the United States, but reduced U.S. exports of other goods by an equal amount. D. into the United States and made U.S. net exports rise.arrow_forwardSuppose there is a country “A", the currency of A is "X". Suppose that for some reason, the world's import demand for country A's products increases. Please use use the chart to analyze how the exchange rate of X moves to the long-term equilibrium.arrow_forwardAb 44 Economics The following graph shows the market for euros, which is initially in equilibrium. Suppose an economic expansion in the United States leads to an increase in the incomes of American households, causing imports from Europe to rise. On the graph, illustrate the effect of an economic expansion on the market for euros by shifting the appropriate curve or curves.arrow_forward
- Suppose that Pakistani government is considering an investment tax credit, which subsidizes domestic investment.. Using a three panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this policy affects the amount of imports, exports, and net exports.arrow_forwardAccording to the economic theory, growth in a country's exports results in appreciation of the country's currency. Explain under which conditions this will not be true. Illustrate your answer with an example.arrow_forwardYou work for a Nova Scotia Company trying to successfully enter the cranberry market in Australia. Analyze the entry country (Australia) based on the following; What are the major exports, dollar value, and trends? What are the major imports, dollar value, and trends? Does the entry country have a surplus or deficit for trade? What are the exchange rates? Are there any restrictions on currency trade? You should also consider sweat shops, skilled labor, employee unrest, political and social activists and labor unions in your analysis.arrow_forward
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