prac exam#1_ans_wi2017 - Econ171 International Finance...

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1 Econ171 International Finance – Practice Exam #1 Answers Winter 2017 I. True or False State whether a given paragraph is true or false and explain your answer briefly if your choice is false. 1. Restrictions on imports (in the form of higher import tariffs) from foreign countries would lower imports and thus necessarily reduce a U.S. current account deficit. False CA ൌ ሺܵ െ ܫሻ ൅ ሺܶ െ ܩሻ . Higher U.S. barriers to imports may have little or no impact upon private saving ሺܵ , investment ሺܫሻ and government saving ሺܶ െ ܩሻ . If there were no effect on these variables, the current account would not improve with the imposition of tariffs. It is possible to tell stories in which the effect on the current account goes either way. For example, investment could rise in industries protected by the tariff, worsening the current account. (Indeed, tariffs are sometimes justified by the alleged need to give ailing industries a chance to modernize their plant and equipment.) On the other hand, investment might fall in industries that face a higher cost of imported intermediate goods as a result of the tariff. So, the import tariff does not necessarily improve the home country’s current account. 2. A Canadian tourist pays $30 for dinner at a restaurant in Riverside by charging his visa credit card.
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