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# ps1 - Department of Economics University of California...

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Department of Economics University of California, Berkeley Spring 2006 Economics 182 Problem Set 1 Due in class on Thursday, February 9. To be handed at the beginning of lecture . Please write your name, GSI name and section time in your problem set. Problem 1: National income accounts Suppose an economy’s national accounts are GDP = 100, C = 70, I = 40, G = 20, NFP = 0 and EX = 20 where GDP is gross domestic product, C is consumption, I is investment, G is government spending, NFP is net factor payments, and EX is exports. Recall Y GNP = GDP + NFP. Since NFP = 0, then Y = GDP. Using the national income identity find the value of imports (IM). What is the current account balance? What is the savings rate ? What would the government, private, and total savings rate be if the government introduced taxes T = 10 while the other variables remain unchanged? Problem 2: BoP transactions Explain how, if at all, each of the following transactions generates two entries (a credit and a debit) in the U.S. balance of payments accounts and describe how each entry would be classified: (a) A U.S. resident buys shares of a Portuguese company paying via wire transfer from her Wells Fargo account to a Portuguese bank. (b) A U.S.-owned company in Britain uses local earnings to buy an additional ma- chine. (c) An Australian tourist rents a car in the U.S. and pays with her credit card. Problem 3: BoP identity Is it possible for a country to have a current account surplus and balance of payments deficit at the same time? Explain your answer and provide a numerical example. Problem 4: BoP accounts As discussed in lecture, central bank reserve transactions enter into a country’s bal- ance of payments as part of the Financial Account (FA) under official reserve balance.

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ps1 - Department of Economics University of California...

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