Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 32, Problem 6PA
To determine
The impact of subsidy on net exports and real exchange rate.
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A Senator announces his past support for protectionism. “The U.S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidize U.S. exports instead, we can reduce the deficit by increasing our competitiveness.” Using a three-panel diagram from Chapter 19 in the Mankiw textbook, show the effects of an export subsidy on U.S. net exports, national saving, domestic investment, net capital outflows, the interest rate, and the real exchange rate. Do you agree with the senator?
You 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.
Should imports to the United States be curtailed by, say 20 percent to eliminate our trade deficit? What might happen if this were done?
Chapter 32 Solutions
Principles of Economics (MindTap Course List)
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Similar questions
- Does a trade surplus mean an overall inflow of financial capital to an economy, or an overall outflow of financial capital? What about a trade deficit?arrow_forwardIn recent decades, has the U.S. trade balance usually been in deficit, surplus, or balanced?arrow_forwardSuppose the US goes into a recession where the economy is not growing very quickly (or is actually shrinking) while the economies of our trading partners remain strong. What will most likely happen to our trade deficit? In your answer, explain what will happen to US exports and US imports and why.arrow_forward
- Exchange Rate Effects on Trade Explain why a stronger dollar could enlarge the U.S. balance-of-trade deficit. Explain why a weaker dollar could affect the U.S. balance-of-trade deficit.arrow_forwardJapan generally runs a significant trade surplus. Do you think this is most related to high foreign demand for Japanese goods, low Japanese demand for foreign goods, a high Japanese saving rate relative to Japanese investment, or structural barriers against imports into Japan? Explain your answer.arrow_forward
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