Points Awarded100.00Points Missed0.00Percentage100%1.Explain, in five sentences or less, exactly why the trade deficit in the US increased from 1995 to 2000. Thereare two specific reasons. Make sure you explain clearly (the intuition) why each reason would add to our tradedeficit.
Table for Individual Question FeedbackPointsEarned:20.0/20.0CorrectAnswer(s):TWO REASONS: 1) Very strong growth in the US economy relative tothe rest of the world, increasing our appetite for foreign goods resultingin a trade deficit (recall the marginal propensity to import!). 2) Variousfinancial crises (E. Asia, Russian) that resulted in the $ US appreciating(safe haven argument). The stronger dollar made imports cheaper (webuy more) and exports more expensive resulting in a larger trade deficit.2.Suppose that you received your college degree from Penn State and nailed a great job over in Europe in thesummer of 2001. Given that your family remains in the US, you make sure that you visit the family everyNovember by traveling from Europe to the US. We are going to compare the cost of this vacation, in terms ofeuros, during two different periods: November 2002 and November 2012. We assume that the cost of the trip,in terms of $ US, remains the same at $1,000 in both periods. Using the data below, we will compare the eurocost of the trip in November 2002 vs. the euro cost of the trip in November 2012.
