Tutorial 1 answers 2019 post.pdf - Q1 It is impossible for a country to run CA deficit(e.g $100 without capital inflow(unless the special case where

Tutorial 1 answers 2019 post.pdf - Q1 It is impossible for...

This preview shows page 1 - 2 out of 5 pages.

1 Q1. It is impossible for a country to run CA deficit (e.g. $100) without capital inflow (unless the special case where there has been a unilateral transfer). Q2. The change in inventory term INV in the counting of “I” automatically adjust for the two problems raised and ensures that the way we count GNE will produce a number = GDP. Violation of condition (a) INV must be negative since there is not enough output (GDP) to satisfy total spending excluding spending on inventory investment, i.e. C + fixed investment + G, this year. Hence when we “count” GNE using the formula C + I + G, we have negative INV term: GNE = C + I + G GNE = C + [ fixed investment + INV ] + G GNE = C + fixed investment + G + INV The negative INV can be planned or unplanned by firms, or a combination. It is unplanned if firms had no intention to reduce their inventory stock. In this case, they are surprised by the C + fixed investment + G being above their GDP and are “forced” to dig into their inventory to satisfy demand. But it can also be planned if firms are pessimistic about future and
Image of page 1

Subscribe to view the full document.

Image of page 2
  • Fall '15
  • Foreign exchange market, GNE

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes