An open economy's output is expected to be 100 units forever and it can borrow and lend freely from the rest of the world at an interest rate 10%. Assume that the initial wealth is zero and there are no unilateral transfers. An investment opportunity for this economy arises whereby an investment of 45 units in the first period (i.e., t = 0) will increase its output by 10 units forever thereafter (i.e., from t = 1 onwards). However, in t=0 the output will remain at 100. Shall the economy borrow and undertake this investment? If the economy always chooses a smooth consumption, what will be the consumption level that it will choose? What will be the trade balance in period 0? What will be the wealth level at the end of period 0? What is the trade balance, NFIA, Current account, and wealth level at the end of period 1, 2, 3,...

An open economy's output is expected to be 100 units forever and it can borrow and lend freely from the rest of the world at an interest rate 10%. Assume that the initial wealth is zero and there are no unilateral transfers. An investment opportunity for this economy arises whereby an investment of 45 units in the first period (i.e., t = 0) will increase its output by 10 units forever thereafter (i.e., from t = 1 onwards). However, in t=0 the output will remain at 100. Shall the economy borrow and undertake this investment? If the economy always chooses a smooth consumption, what will be the consumption level that it will choose? What will be the trade balance in period 0? What will be the wealth level at the end of period 0? What is the trade balance, NFIA, Current account, and wealth level at the end of period 1, 2, 3,...

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

The saving rate (gross domestic saving as a % of GDP) in Australia, a small open economy, was 15% in 2011 while the investment rate (domestic investment as a % of GDP) was 25%. As a result, there was net outflow of capital from Australia in 2011. Is this true, false or uncertain? Please provide your explaination.
A mathematical approximation called the rule of 70 tells us how long it will take for something to double in size if it grows at a constant rate. The doubling time is approximately equal to the number 70 divided by the percentage rate of growth. Thus, if Panama's real GDP per person is growing at 7 percent per year, it will take about 10 years ( 70/7) to double. Apply the rule of 70 to solve the following problem: Suppose that real GDP per person in Panama in 2017 was about $13,000 per person, while it was about $52.000 per person in the United States. If real GDP per person in Panama grows at the rate of 2 percent per year, about how long will it take Panama's real GDP per person to reach the level that the United States was at in 2017? (Hint How many times would Panama's 2017 real GDP per person have to double to reach the United States' 2017 real GDP per person?) Instructions: Enter your answer as a whole number. years
Given that a country will analyze the total benefit of its oil supply-demand in two periods of time by using the following data: Period I Deman curve: P = -0.2 Q₁ + 210 Suply curve: P = 0.04 Q₁ + 30 Interest rate : 10%, Oil reserve : 3.6 billion barrels of oil Units: P in USD, Q in million barrel Period II Deman curve: P = -0.2 Q₂ +210 Suply curve: P = 0.05 Q₂ + 30 Find the efficient allocation! (Q₁, Q₂, P₁, P₁, NB₁, NB₂, TNB), draw a graphical illustration!
Suppose that the production function is Y = 10 ( K )^1/4 ( L )^3/4 and capital lasts for an average of 50 years . Assume that the rate of growth of population equals 0 and saving rate s = 0.128 . a. Calculate the steady - state level of capital per worker , output per worker , consumption per worker , saving and investment per worker , and depreciation per worker b. Suppose that initial level of capital per worker is 100 , explain the moving process to the steady state . c . Use relevant graph to demonstrate . Plsss provide detailed answers, thank you
Suppose the economy is in equilibrium, and assume no government or foreign sector. If total saving equals 41750, then intended investment must equal...
1) The depreciation rate of capital in the US is 8 = 0.043 and the population growth rate is g₁ = 0.007. Moreover, Y/K is around 0.35 on average over the last 60 years in the US (see the graph below). If the saving rate is s = 0.2 in the US, then find the long-run growth rate of average income in the US according to the Solow's model. (Note: To cross-check Compare your theoretical result with the actual growth rate of average income in the US which is 2%.) 0,43 0,41 0,39 0,37 0,35 0,33 0,31 0,29 0,27 0,25 1950 1953 1956 1959 1962 1965 Y/K in the US 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
Suppose that K(t+3)/N > K(t+1)/N, where K(t+3) is capital in period t+3 and K(t+1) is capital in period t+1. The economy will reach or reached a steady-state (long-run equilibrium) in period __ (choose the best one, given the information available). t+5 t-2. t-1. t
Draw a graph with the following elements: A Solow growth (Y) function where Y= square root of K An investment (I) function where I = % * Y A depreciation (D) function where D = % * K
The 2020 Economic Report of the President on your country contained the following statements: "Devoting a large share of national output to investment would help restore rapid productivity growth and rising living standards in this period of COVID-19." Do you agree with this claim? Explain.
Suppose that the per hour worked form of the production function for an economy is given by y = 10k03 The depreciation rate is 11%, the saving rate is 21%, and the growth rate of labor hours is 7%. The steady-state capital-labor ratio for this economy is (Round your response to two decimal places.)
Suppose that two countries share identical technology, depreciation rate, saving rate, and population growth. However, these two countries started off with different levels of capital stock. Which of the following is/are true? (i) The country with initially smaller capital stock grows more quickly to reach the steady state compared to the country with initially larger capital stock. (ii) The country with initially smaller capital stock will have a smaller capital stock in the steady state compared to the country with initially larger capital stock. (iii) Both countries will grow at the same rate in reaching the steady state. O a. Both (i) and (ii). O b. Only (iii). O c. Only (i). O d. Cannot tell. Need more information.
Exercise 6 (Dark Matter Versus Return Differentials). Suppose net investment income is N II = 300, the net international investment position is N IIP = −2000, the international liability position is L = 5000, and the interest rate on international liabilities is 4 percent (r L = 0.04). Part 1: Economic consultant Jim Taylor, a strong advocate of the return differential hypothesis, maintains that the rate of return on the country’s international assets, denoted r A, is different from the return on its net international liabilities, r L. Find the value of r A consistent with Taylor’s view. Part 2: Economist Carol Powell does not support the idea of return differentials. Instead, she defends the dark matter hypothesis. Specifically, she believes that A is not accurately recorded and that the rate of return is 4 percent on both, A and L. Calculate the amount of dark matter and the ‘true’ international asset position, which we will denote T A, consistent with Powell’s view.