The impact of increasing imports rather than exports.

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Answer 1

Question

Chapter 26, Problem 1DQ

To determine

The impact of increasing imports rather than exports.

Expert Solution & Answer

Explanation of Solution

Net export is the additional value of export over the imports, which can be calculated by subtracting imports from exports. When the import is greater than exports, it shows trade deficit of the country. Aggregate demand is the sum of consumption, investment, government expenditure, and net export. Since the net export is a factor in calculating aggregate demand, trade deficit will cause a decrease in aggregate demand. On the other hand, the benefit of trade deficit can be summarized as the increase in the ability to consume goods and services, which increases the production. An increase in imports means an increase in foreign capital inflow to the country, which will compensate the shortage of savings. Otherwise, this may lead to government deficit.

Economics Concept Introduction

Trade deficit: Trade deficit refers to a situation where the imports of a country are higher than the exports by the country.

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Students have asked these similar questions

5. Some people find options expensive and use more complex structures to reduce the cost. For example, consider buying a call with a strike of $55 and selling a call with a strike of $60. a. What is the cost of establishing this combined position? b. What is the payoff of the combined position if the market price goes to $60? c. What is the payoff of the combined position if the market price goes to $100?

3. An investor has $1,000 to invest. They believe the price of the underlier will increase to $60 within one year. a. How many shares of stock could they buy with the $1,000 at the current price of $50, and how much would they make if the share price increased to $60? b. How many calls with a strike of $55 could they buy for the same $1,000, and how much would they make if the share price increased to $60? c. How much would they make (or lose) from the stock and from the calls if the share price declined to $40? 4. What is the premium on a call with a strike of $0.01? Why is the premium so close to the $50 share price?

1. We want to examine the comparative statics of the Black Scholes model. Complete the following table using the Excel model from class or another of your choice. Provide the call premium and the put premium for each scenario. Underlier Risk-free Scenario price rate Volatility Time to expiration Strike Call premium Put premium Baseline $50 5% 25% 1 year $55 Higher strike $50 5% 25% 1 year $60 Higher volatility $50 5% 40% 1 year $55 Higher risk free $50 8% 25% 1 year $55 More time $50 5% 25% 2 years $55 2. Look at the baseline scenario. a. What is the probability that the call is exercised in the baseline scenario? b. What is the probability that the put is exercised? c. Explain why the probabilities sum to 1.

Answer 2

Question

Chapter 26, Problem 1DQ

To determine

The impact of increasing imports rather than exports.

Expert Solution & Answer

Explanation of Solution

Net export is the additional value of export over the imports, which can be calculated by subtracting imports from exports. When the import is greater than exports, it shows trade deficit of the country. Aggregate demand is the sum of consumption, investment, government expenditure, and net export. Since the net export is a factor in calculating aggregate demand, trade deficit will cause a decrease in aggregate demand. On the other hand, the benefit of trade deficit can be summarized as the increase in the ability to consume goods and services, which increases the production. An increase in imports means an increase in foreign capital inflow to the country, which will compensate the shortage of savings. Otherwise, this may lead to government deficit.

Economics Concept Introduction

Trade deficit: Trade deficit refers to a situation where the imports of a country are higher than the exports by the country.

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Answer 3

Question

Chapter 26, Problem 1DQ

To determine

The impact of increasing imports rather than exports.

Expert Solution & Answer

Explanation of Solution

Net export is the additional value of export over the imports, which can be calculated by subtracting imports from exports. When the import is greater than exports, it shows trade deficit of the country. Aggregate demand is the sum of consumption, investment, government expenditure, and net export. Since the net export is a factor in calculating aggregate demand, trade deficit will cause a decrease in aggregate demand. On the other hand, the benefit of trade deficit can be summarized as the increase in the ability to consume goods and services, which increases the production. An increase in imports means an increase in foreign capital inflow to the country, which will compensate the shortage of savings. Otherwise, this may lead to government deficit.

Economics Concept Introduction

Trade deficit: Trade deficit refers to a situation where the imports of a country are higher than the exports by the country.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 26, Problem 1DQ

To determine

The impact of increasing imports rather than exports.

Expert Solution & Answer

Explanation of Solution

Net export is the additional value of export over the imports, which can be calculated by subtracting imports from exports. When the import is greater than exports, it shows trade deficit of the country. Aggregate demand is the sum of consumption, investment, government expenditure, and net export. Since the net export is a factor in calculating aggregate demand, trade deficit will cause a decrease in aggregate demand. On the other hand, the benefit of trade deficit can be summarized as the increase in the ability to consume goods and services, which increases the production. An increase in imports means an increase in foreign capital inflow to the country, which will compensate the shortage of savings. Otherwise, this may lead to government deficit.

Economics Concept Introduction

Trade deficit: Trade deficit refers to a situation where the imports of a country are higher than the exports by the country.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 26, Problem 1DQ

To determine

The impact of increasing imports rather than exports.

Expert Solution & Answer

Explanation of Solution

Net export is the additional value of export over the imports, which can be calculated by subtracting imports from exports. When the import is greater than exports, it shows trade deficit of the country. Aggregate demand is the sum of consumption, investment, government expenditure, and net export. Since the net export is a factor in calculating aggregate demand, trade deficit will cause a decrease in aggregate demand. On the other hand, the benefit of trade deficit can be summarized as the increase in the ability to consume goods and services, which increases the production. An increase in imports means an increase in foreign capital inflow to the country, which will compensate the shortage of savings. Otherwise, this may lead to government deficit.

Economics Concept Introduction

Trade deficit: Trade deficit refers to a situation where the imports of a country are higher than the exports by the country.

Answer 6

Chapter 26, Problem 1DQ

To determine

The impact of increasing imports rather than exports.

Expert Solution & Answer

Explanation of Solution

Net export is the additional value of export over the imports, which can be calculated by subtracting imports from exports. When the import is greater than exports, it shows trade deficit of the country. Aggregate demand is the sum of consumption, investment, government expenditure, and net export. Since the net export is a factor in calculating aggregate demand, trade deficit will cause a decrease in aggregate demand. On the other hand, the benefit of trade deficit can be summarized as the increase in the ability to consume goods and services, which increases the production. An increase in imports means an increase in foreign capital inflow to the country, which will compensate the shortage of savings. Otherwise, this may lead to government deficit.

Economics Concept Introduction

Trade deficit: Trade deficit refers to a situation where the imports of a country are higher than the exports by the country.

Answer 7

Chapter 26, Problem 1DQ

To determine

The impact of increasing imports rather than exports.

Answer 8

Expert Solution & Answer

Explanation of Solution

Net export is the additional value of export over the imports, which can be calculated by subtracting imports from exports. When the import is greater than exports, it shows trade deficit of the country. Aggregate demand is the sum of consumption, investment, government expenditure, and net export. Since the net export is a factor in calculating aggregate demand, trade deficit will cause a decrease in aggregate demand. On the other hand, the benefit of trade deficit can be summarized as the increase in the ability to consume goods and services, which increases the production. An increase in imports means an increase in foreign capital inflow to the country, which will compensate the shortage of savings. Otherwise, this may lead to government deficit.