Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 19, Problem 1E
To determine
Country C’s situation relative to the conventional macrocosmic wisdom.
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Consider the following model of an economy with no international trade, and in which the price level is fixed:
C = 40 + (8/9)∙DI
I = 30
G = 30
Taxes = (1/8)∙GDP
where C is consumption demand, DI is disposable income, I is planned investment, G is government purchases, and all whole numbers are in billions of dollars.
Determine the equilibrium level of production (GDP) in this economy (show your work), and draw this equilibrium situation on a graph.
Use the multiplier to determine the change in equilibrium GDP that would result from an exogenous 16 billion dollar increase of government purchases. Then determine…
Using ideas behind the specific model, intuitively explain how gains from trade for the overall economy do not necessarily translate into gains for every group within the economy. In the model, what are definite winners and losers. For whom are the gains unclear?
Do you think the Heckscher-Ohlin model sufficiently explains trade between countries? Explain why you think yes, or no
Chapter 19 Solutions
Macroeconomics (Fourth Edition)
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- Generally, how does the standard of living in the United States today compare to the standard of living in other countries? To the standard of living in the United States a century ago?The Bureau of Economic Analysis, or BEA, is a government agency collecting various U.S. economy statistics. From the BEA’s website, find data for the most recent year available on U.S. exports and imports of goods and services. Is the United States running a trade surplus or deficit? Calculate the ratio of the surplus or deficit to U.S. exports.There are many people out there providing opinions on the economy. How can differences of opinion about economic policy recommendations be resolved?arrow_forwardThis question concerns the Ricardian Model. In autarky, the relative price of a Computer (in terms of barrels of Beer) in Country A is 25B/C. In autarky in Country B, the same relative price is 40B/C. If the two countries open to trade, which country will export Beer? Give one possible world equilibrium price of Computers once trade has been opened (there are an infinite number).arrow_forwards it possible for countries to achieve internal and external balance in their economies ? Explain .Answer :arrow_forward
- Q4. Suppose that Brazil initially has a higher capital rental rate (r) than the United States. What would be the direction of foreign direct investment (FDI)? Use a world-capital-market graph to show the effects of FDI on the two countries’ rental rates of capital, GDP, and return to labor owners. Identify the net change in world output in the above graph. Discussion: what other effects could FDI cause in the recipient and source countries that are not captured in the model? Your answerarrow_forwardSuppose that a vaccine manufacturing company owned entirely by U.S. citizens opens a new facility in Canada. Answer all three parts below. In each case, carefully explain your answer. a) What sort of foreign investment would this represent? b) What would be the effect of this investment on current Canadian Gross Domestic Product (GDP) and U.S. GDP? c) What would be the effect of this investment on future per capita incomes in Canada?arrow_forwardWill a direct increase in the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in Aggregate Demand? Will a change in the exchange rate that subsequently increases the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in Aggregate Demand?arrow_forward
- Some economists warn that the persistent trade deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? Explain your answer.arrow_forward"In an economy with a high dependency on imported oil, what is the likely macroeconomic impact of a sustained and significant increase in global oil prices? A) An immediate improvement in the trade balance due to Increased export revenues. B) A decrease in inflation as higher oil prices lead to reduced consumer spending. C) An increase in the general price level and potential deterioration of the trade balance. D) Stabilization of the currency value due to increased demand for domestic currency to purchase oil.arrow_forwardIn the past half century, the developing countries have experienced major compositional shifts from exports of primary products (including agricultural and raw materials) to exports of manufactures. How might you explain this in terms of broad historical developments during this period?arrow_forward
- An economy is said to be closed economy, when: Domestic firms Invest in Industries overseas Imports exactly equal exports, so that trade is balanced The home economy Is Isolated from foreign trade. Saving exactly equals Investment at full employmentarrow_forwardWhy do larger countries typically have smaller export markets (as a percentage of total production) than smaller countries?arrow_forwardWhich of the following belong among the key features of the current world economy? Predictability. Liberalization at the global level. Liberalization at the regional level. Higher degree of uncertainty regarding future development and volatility of capital flows.arrow_forward
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