ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Consider the economy of the planet Navarro. In Navarro, domestic investment of 400 million imperial credits earned 15 million in
capital gains during the year. In addition, Navarro purchased $160 million in new foreign assets and foreigners purchased $10 million in Navarro assets. Assume that the valuation effects total $5 million in capital gains.
a. Compute the change in domestic wealth in Navarro.
b. Compute the change in external wealth for Navarro.
c. Compute the total change in wealth for Navarro.
d. Compute domestic savings for Navarro.
e. Compute Navarro’s current account. Is the CA in deficit or surplus?
f. Explain the intuition for the CA deficit/surplus in terms of savings in Navarro, financial flows, and its domestic/external wealth position.
g. How would an appreciation in Navarro’s currency (the imperial credits) affect its domestic, external, and total wealth? Assume that foreign assets owned by Navarroans are denominated in foreign currency.
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Step 1: Introduce the concept of domestic and external wealth.
VIEW Step 2: Compute the change in (a) domestic wealth, (b) external wealth and (c)total wealth.
VIEW Step 3: Compute (d) domestic savings and (e) Navarro’s current account
VIEW Step 4: Explain the (f) intuition for CA deficit/surplus and effect of (g)appreciation in Navarro’s currency
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