During the year, Japan had a current-account surplus of 98 billion. What is the gap between Japan’s national expenditure and its national income? Explain. What is the gap between Japan’s savings and its domestic investment? Explain. Suppose the Japanese government’s budget ran a 22 billion surplus during the year. What can you conclude about Japan’s private savings-investment balance for the year? Explain.

You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a quota on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market.   Given this change, the dollar (appreciate,  depreciate)   .   Fill in the following table with the effect of a quota on the following items: Supply of Loanable Funds Real Interest Rate Domestic Investment Net Exports in crease, decrease, or no change increase, decrease or no change increase decrease or no change  increase , decrease or no change

Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing (Balanced trade/ a trade deficit/ a trade surplus)   Now, suppose the government is experiencing a budget deficit. This means that ( National saving will increase/ national saving will decrease/ Domestic investment will increase / domestic investment will decrease) which leads to ( an increase in the supply of / a decrease in the supply of / an increase in the demand for/ a decrease in the demand for) loanable funds.   After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign-currency exchange market.   Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to show the supply curve after the budget deficit.     Summarize the…

Suppose there is an increase in foreign output. Show the effect on the domestic economy . What is the effect on domestic output? On domestic net exports?

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Catherin Mann (2006), “The Current Account and the Budget Deficit: A Disaggregated Perspective,” in Kopcke, Tootell, and Triest (eds.), The Macroeconomics of Fiscal Policy, MIT Press In the article, Mann notes that the foreign financing of the US current account deficit has increasingly taken the form of foreigners purchasing US Treasury bonds. She is concerned that the increase of foreign holdings of US Treasury bonds may worsen the US current account deficit in the future. Which of the following statements is inconsistent with her reasons behind the concern? a. As global interest rates starts to climb, the overall payments on interest-bearing liabilities (including US Treasury bonds) will rise. b. The interest paid on US government debt (ie, US Treasury bonds) will be increasingly paid to foreign holders, setting up a negative feedback loop between fiscal deficit and current account deficit. c. The greater the US current account deficit, the larger the risk of eventual, sharp…

Because of the increased global unrest, citizens in a small open economy are no longer travelling abroad for their holiday. As a consequence, in the long term the net exports of that small open economy will _____    a) increase because the national savings increased as well    b) be unchanged because only the demand for net exports has increased    c) fall because the national savings fell as well    d) be unchanged because only the demand for net exports has decreased

37. Assume the Marshall-Lerner condition holds. Which of the following will cause an increase in net exports? A) an increase in government spending B) an increase in investment C) a reduction in foreign output D) a reduction in the real exchange rate E) all of the above 38. In an open economy, an increase in government spending will cause A) a reduction in domestic output. B) a reduction in imports. C) a reduction in net exports. D) all of the above E) none of the above 39. Suppose that the rest of the world experiences an economic boom causing an increase in foreign output (Y*). This increase in Y* will not cause which of the following to occur? A) the domestic country's output to increase B) the domestic country's consumption to increase C) the domestic country's output to increase and its trade balance to worsen as imports increase D) all of the above E) none of the above 40. We will generally observe that the more open an economy A) the larger the effect of fiscal policy on output…

We showed in Eq. (2.10) that S = 1 + CA, where S is national saving, / is investment, and CA is the current account balance. Calculations of national saving and investment depend on the treatment of government investment. In the text, we treated government purchases, G, as if they were consumption expenditures. Therefore, Eq. (2.7) states that government saving is Saovt = (T - TR- INT)- G, so that (1) national saving in Eq. (2.8) is S = Y + NEP- C-G, and (2) I in Eq. (2.10) is gross private domestic investment GPDI. As mentioned in the text, a more detailed treatment recognizes that government purchases comprise consumption expenditures, which we will call GCE, and government investment, which we will call GI, so G = GCE + GI. Now define government saving as (T- TR- INT) - GCE. With this alternative definition of government saving, show that private saving plus government saving = /+ CA, where investment (/) is the sum of GPDI and GI. Here are recent values for many of the variables…

QUESTION 9 As a result of entering the world economy, Neverland experiences economic boom and its GDP goes up to y= 13250: The functions that describe consumption and investment are still the same: cd(r) = 5000 – 1000r+ 0.25Y and Id(r) = 500 – 1800r +0.2Y. The government wants to take advantage of growth and increases its expenditures to: G- 1000: What is Neverland's current account balance? Note: Type in your answer approximated to two decimal points, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard will automatically delete it and you should not do anything about it.