Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 14, Problem 7PA
To determine
The impact of export subsidy on the economy.
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Suppose the United States decides to subsidize the export of U.S. agricultural products, but it does not increase taxes or decrease any other government spending to offset this expenditure. Using a three panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this U.S.policy affects the number of imports, exports, and net exports.
Suppose the United States decides to subsidize the export of U.S. agricultural products, but it does not increase taxes or decrease any other government spending to offset this expenditure. Using a three-panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this U.S. policy affects the amount of imports, exports, and net exports.
The following question focuses on the exchange rate between Mexican pesos and U.S. dollars, defined as the number
of Mexican pesos you must pay for one dollar.
Suppose that incomes decrease in Mexico, causing Mexican consumers to purchase fewer U.S.-made goods and
services. How does this affect the peso-dollar exchange rate? Drag the appropriate curve(s) on the following graph to
illustrate how this change affects the market for dollars.
Tool tip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move the curve and
it snaps back to its original position, just try again and drag it a little farther.
EXCHANGE RATE (Pesos per dollar)
Supply
Demand
FOREIGN EXCHANGE IMIlions of dollars)
A decrease in incomes that causes Mexican consumers to buy fewer U.S.-made goods and services will cause the
Mexican peso to
relative to the dollar,
appreciate
depreciate
Chapter 14 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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- Suppose that Pakistani government is considering an investment tax credit, which subsidizes domestic investment.Using a three panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this policy affects the amount of imports, exports, and net exports.arrow_forwardScroll down to "U.S. Trade in Goods and Services by Selected Countries and Areas, 1999 - Present" and download those spreadsheets. https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services Using Table 1, to which three nations (not areas or regions) did the U.S. export the highest dollar value of goods and services in 2021? Using Table 1, to which three nations (not areas or regions) did the U.S. export the highest dollar value of goods and services in 2017?arrow_forwardWould each of the following transactions be includedin U.S. net exports or in U.S. net capital outflow?Indicate whether it would represent an increase or adecrease in that variable.a. An American buys a Sony TV.b. An American buys a share of Sony stock.c. The Sony pension fund buys a bond from theU.S. Treasury.d. A worker at a Sony plant in Japan buys someGeorgia peaches from an American farmer.arrow_forward
- Is it better for a country to export more or to import more? Moreover, what is the impact of trade surplus (exporting more than importing) and trade deficit (importing more than exporting) on GDP, employment, and the exchange rate of the country's currency?arrow_forward. Suppose thatY =Y, NX T in the U.S. Using the large open economy model, illustrate and explain how the policymakers, using a combination of monetary, fiscal, and trade policies, can reduce the trade deficit, decrease the government's budget deficit, and increase the level of domestic investment, while keeping Y at Y and without changing the exchange rate.arrow_forwardIn 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy reduced imports A. of steel into the United States and increased U.S. exports of other goods by an equal amount. B. into the United States and made the net supply of dollars in the foreign exchange market shift right. C. of steel into the United States, but reduced U.S. exports of other goods by an equal amount. D. into the United States and made U.S. net exports rise.arrow_forward
- In 2010, the economy of the Utopia exported goods worth $232 billion and services worth another $87 billion. It imported goods worth $225 billion and services worth $56 billion. Receipts of income from abroad were $110 billion while income payments going abroad were $91 billion. Government transfers from the Utopia to the rest of the world were $23 billion, while various Utopia government agencies received payments of $16 billion from the rest of the world. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for Utopia in 2010.arrow_forwardSuppose there is a country “A", the currency of A is "X". Suppose that for some reason, the world's import demand for country A's products increases. Please use use the chart to analyze how the exchange rate of X moves to the long-term equilibrium.arrow_forwardU.S. goods exports +$ 390 U.S. goods imports - 520 U.S. service exports +145 U.S. service imports -107 Net investment income +12 Net transfers -22 Capital account -5 Foreign purchases of U.S. assets +156 U.S. purchases of foreign assets -49 The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance on the financial account was a A. $107 billion surplus. B. $102 billion surplus. C. $107 billion deficit. D. $102 billion deficit.arrow_forward
- 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.arrow_forwardAccording to the economic theory, growth in a country's exports results in appreciation of the country's currency. Explain under which conditions this will not be true. Illustrate your answer with an example.arrow_forwardSuppose that Pakistani government is considering an investment tax credit, which subsidizes domestic investment.. Using a three panel diagram, show what happens to national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how this policy affects the amount of imports, exports, and net exports.arrow_forward
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