Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 32, Problem 3QCMC
To determine
The impact of cutting government spending to reduce deficit on interest rate, capital, and real exchange rate.
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If domestic interest rate is higher than foreign countries interest rates, then there will be _____________ ."A) a capital outflow and supply of domestic currency will increase. B)a capital outflow and demand for domestic currency will increase.C) a capital inflow and demand for domestic currency will increase.D) a capital inflow and demand for domestic currency will fall.
A net exports deficit will become a surplus if _______.
A.
the country appreciates its currency
B.
the government budget deficit is turned into a surplus and the private sector has a surplus
C.
private saving and government saving exceed private investment
D.
the private sector surplus adjusts to equal the government sector deficit
China announces that it will devalue the yuan in one week. How will the equilibrium in the foreign exchange market be effected?
Select the correct answer below:
a. The yuan will appreciate and its quantity will increase.
b. The yuan will depreciate and its quantity will decrease.
c. The yuan will depreciate and its quantity will remain unchanged.
d.The yuan will depreciate and its quantity will either increase, decrease, or remain the same.
Chapter 32 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of 100 billion, total domestic savings of 1,500 billion, and total domestic physical capital investment of 1,600 billion. According to the national saving and Investment Identity, what will be the current account balance? What will be the current account balance if Investment rises by 50 billion, while the budget deficit and national savings remain the same?arrow_forwardIn 2019 Country A had a current account deficit of $1.2 billion. CountryA's capital account was in a $100 million surplus. In addition, CountryA's factors of production located in foreign countries earned $600 million.Country A had a trade deficit of $800 million. Assume Country A neithergave nor received unilateral transfers. Country A's GDP was $9 billion. Answer the following questions about Country A in 2019. and show your work. i) compute net factor income from abroad of Country A. ii) How much income did foreign factors of production earn in CountryA? iii) Compute Country A's GNE and GNI.arrow_forwardA government began 2019 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause: Oa) the exchange rate and the trade deficit to increase. b) the exchange rate and the trade deficit to decrease. c) the exchange rate to decrease and the trade deficit to increase. d) the exchange rate to increase and the trade deficit to decrease. Question 5 ( At the beginning of 2019, a government had a total debt of $540 billion dollars. It ended 2019 with a $16 billion dollar budget surplus. In 2020, it experienced a budget deficit of $7 billion dollars. What is the total debt of the government equal to at the end of 2020? a) $573 billion b) $563 billion Oc) $531 billion d) $517 billionarrow_forward
- 2arrow_forwardBased on the table below, which of the following is likely to be true? a. From the first period to the second, the U.S. is using an increasing current account surplus to finance consumption. b. From the first period to the second, the U.S. is using an increasing financial account surplus to finance the larger budget deficit. c. From the first period to the second, public saving is increasing. d. From the first period to the second, the U.S. financial account deficit is increasing.arrow_forwardImagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1% of Germany’s GDP; private savings is 20% of GDP; and physical investment is 18% of GDP. a. Based on the national saving and investment identity, what is the current account balance? b. If the government budget surplus falls to zero, how will this affect the current account balance?arrow_forward
- If other things are held constant, an increase in Kazakhstan's export will a. Tend to cause tenge to depreciate because the supply of tenge will decline b. Tend to cause tenge to depreciate because the supply of tenge will rise C. Have no effect on tenge value d. Tend to cause tenge to appreciate because the demand for tenge will rise e. Tend to cause tenge to appreciate because the supply of tenge will risearrow_forwardPlease show how you got the answer.arrow_forwardAustralia has a current account surplus of $3 billion per quarter and a net income deficit of $3 billion per quarter. Which of the following is TRUE? a. The trade surplus is $6 billion per quarter b. The capital account deficit is $6 billion per quarter c. Net foreign liabilities are increasing d. All the other optionsarrow_forward
- The US typically imports (M) more goods and services than it exports (X). a. Explain what this means for both the US Current Account (CA) and Capital Account (aka the Financial Account) and how the US net International Investment Position (IIP) will be affected. b. Why is a CA deficit referred to as an “excess spending” problem? Who is the US borrowing from when it engages in this “excess spending”? [Hint: use the twin-deficit identity.]arrow_forwardA government uses an expenditure-reducing measure to correct a balance of payments current account deficit. In the short term, what effect would this measure have on consumer expenditure and net exports? Pick a,b,c, or d A) consumer expenditure: increase & net exports: decrease B) consumer expenditure: decrease & net exports: decrease C) consumer expenditure: decrease & net exports: increase D) consumer expenditure: increase & net exports: increasearrow_forwardQ4. i. On what grounds we can differentiate between economic growth and economic development" And how trade plays an important role in the development of any economy. ii. If there is expansionary fiscal policy at abroad, and contractionary fiscal policy at home, then in this scenario, what will be the effects on exchange rate, interest rate and on net export?arrow_forward
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