Essentials of Economics
4th Edition
ISBN: 9781464186653
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 9P
To determine
(a)
Impact on net capital outflow of United States.
To determine
(b)
Impact on world economies during 2013 and 1980.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Q.1.10 which of the following statements is correct?
(1) When a British firm invests in a bicycle manufacturing facility in South Africa,
the amount concerned is entered as an inflow on the current account of the
South African balance of payments.
(2)
When someone purchases a second-hand car, the transaction is included in
the calculation of GDP in the year the sale took place.
(3) A deficit on the current account of the balance of payments indicates that
the country exported more than it imported during the period in question.
(4)
In the base year, the value of nominal GDP is equal to the value of real GDP.
Studies indicate that net exports and net capital outflows tend to be equal.
1. Explain why net exports and net capital outflows always tend to be equal.
2. Explain how a change in interest rates can lead to changes in net exports?
You have the following annual figures for the New Zealand economy.
Investment expenditure $40.6 billion Net Exports $3.6 billion Net Foreign Income -$9.5 billion
The current account balance is equal to $____billon (use 1 d.p. and a negative sign if the balance you have calculated is a deficit).
New Zealand domestic savings is equal to $____billon (use 1 d.p.).
Suppose that the government introduces a policy that bans foreign investment in New Zealand. If that happens then (everything else held constant) we would expect to see the current account balance
-rise
-remain the same.
-fall
-become harder to predict
Suppose that along with the above policy, the government also wishes to see investment levels maintained. If that is to occur, what else must be happening in the economy?
- The Government must raise taxes.
- Firms must be offered incentives to invest.
- New…
Chapter 20 Solutions
Essentials of Economics
Knowledge Booster
Similar questions
- Suppose that an economy starts with a net foreign asset to GDP ratio NFA/Y equal to -0.3. After one year, the ratio of net exports to output has been 0. What will the NFA/Y ratio become after this year due to this effect? Suppose that an economy starts with a net foreign asset to GDP ratio NFA/Y equal to -30%. After one year, the real interest rate has been -10%. What will the NFA/Y ratio become after this year due to this effect?arrow_forwardU.S. goods exports +$ 390 U.S. goods imports - 520 U.S. service exports +145 U.S. service imports -107 Net investment income +12 Net transfers -22 Capital account -5 Foreign purchases of U.S. assets +156 U.S. purchases of foreign assets -49 The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance on the financial account was a A. $107 billion surplus. B. $102 billion surplus. C. $107 billion deficit. D. $102 billion deficit.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
- If the U.S government establishes a investment tax credit rule, this rule subsidizes domestic investment. How does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance? Use this model (In the picture) to answer questionarrow_forwardThe following figure shows the Current Account Balance (similar to the Trade Balance) of Japan (black line) and China (red line). During their growth periods (1980s for Japan and 2000s for China), were these countries net savers or borrowers? What are some ways that the governments intervened in the foreign exchange market to keep their BOP from adjusting towards 0? 12.5 10.0 7.5 5.0 2.5 0.0 -5.0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Organization for Economic Co-operation and Development fred.stlouisfed.org US $, Sum Over Component Sub-periods/10000000O000arrow_forwarda) Would each of the following transactions be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or decrease in that variable. i) An Indian buys a Samsung TV ii) An Indian buys a share of sony stock iii) The sony pension fund buys a bond from the Indian government iv) A worker at a Toyota plant in Japan buys some Nagpur oranges from an Indian farmerarrow_forward
- In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…arrow_forwardThe following equations describe a small open-economy: C = 10 + 0.5Y I = 160 - 50r NX = 80 - 0.1Y - e e = 50 - 0.1Y + B (r-r*) G= 10 where C is consumption, I is investment, Y is domestic output, r is the domestic real interest rate, NX is net exports, e is the real exchange rate, G is government spending and r* is the foreign real interest rate. (a) Suppose that ß is fairly small, ß = 5, full employment output is Y = 400 and r* = 0.1. What is the equilibrium value of the domestic interest rate, r? (b) Consider instead that ß is fairly large, B = 1000, where again Y = 400 and r* = 0.1. What is the equilibrium value of the domestic interest rate? (c) What happens to r as ß increases? Does r converge to r* as ß approaches infinity? What type of small open economy model does this resemble?arrow_forwardSuppose that in Tunisia, a small open economy, savings initially exceeds investment. Due to events in the European economy, there is a decline in the world real interest rate. Using a supply and demand diagram, explain what happens in the savings and investment market in Tunisia. Be sure to show in the graph and explain what happens to net exports and net capital outflows. Assume initially that investment exceeds savings in Tunisia.arrow_forward
- State whether each of the following events involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy: a. Mexico imports services from Japan b. Mexico exports goods to Canada c. U.S. investors receive a return from past financial investments in Mexicoarrow_forwardIt is known that the Indonesian economy can be written into the following equations: Y = C +1+ G + NX Y = 8000 G - 2500 T= 2000 C- 500 + 2/3(Y – T) |= 900 – 50r NX - 1500 – 250 e r-r- 5. a. Determine the value of private saving, government saving, national saving, investment, trade balance, and exchange rate balance. b. Now suppose the world interest rate r* drops from 5 to 3 percent. Calculate the value of private saving, government saving, national saving, investment, trade balance, and exchange rate balance. Explain what you find from the change in world interest rates. Use curves to clarify your answer.arrow_forwardI am a bit confused on how to identify whether the problems are decreasing/increasing in Net Exports and Net Capital Flowarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education