Spring17 Econ104 HW7 - Points Awarded 100.00 Points Missed...

Points Awarded 100.00
Points Missed 0.00
Percentage 100%
1.
Explain, in five sentences or less, exactly why the trade deficit in the US increased from 1995 to 2000. There
are two specific reasons. Make sure you explain clearly (the intuition) why each reason would add to our trade
deficit.
Table for Individual Question Feedback
Points
Earned:
20.0/20.0
Correct
Answer(s):
TWO REASONS: 1) Very strong growth in the US economy relative to
the rest of the world, increasing our appetite for foreign goods resulting
in a trade deficit (recall the marginal propensity to import!). 2) Various
financial crises (E. Asia, Russian) that resulted in the $ US appreciating
(safe haven argument). The stronger dollar made imports cheaper (we
buy 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 the
summer of 2001. Given that your family remains in the US, you make sure that you visit the family every
November by traveling from Europe to the US. We are going to compare the cost of this vacation, in terms of
euros, 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 euro
cost of the trip in November 2002 vs. the euro cost of the trip in November 2012.

What was the cost of the trip in 2002 measured in euros?
Table for Individual Question Feedback
Points Earned: 5.0/5.0
Correct Answer(s): B