exam 2 - 3. For a particualr economy, suppose that the...

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3. For a particualr economy, suppose that the total value of imports is 100 and the total value of exports is 250. We can conclude that A) national saving is 150. B) this country borrows 150 from the rest of the world. C) both of the above are true. D) none of the above are true. Feedback: Allowing for the possibility of international lending or borrowing, Walras's Law can be re- written as: IM + Saving = EX where IM is defined as imports, and EX is defined as exports. Therefore, Saving = EX - IM. But for a country to be a net saver, it must be lending this amount to the rest of the world. In essence, the rest of the world is importing 250 worth of goods from this country, paying with 100 worth of their own goods and borrowing the remainder. Correct Answer(s): A 4. In terms of the "balance of payments," transactions involving the exports of services are recorded in a country's A) current account. B) financial account. C) investment account. D) spending account. Feedback: This is true by accounting convention. See Lesson 46. Correct Answer(s): A 5. Suppose that there are two goods (A and B). The prices, demands, and supplies of these two goods are as follows: P A D A S A P B D B S B 2 15 10 1 15 25 Which of the following statements is then true? A) This country is a net exporter of both goods. B) The current account of this country is balanced. C) This country has a financial account deficit of 5. D) This country borrows 5 from the rest of the world. E) Both (a) and (b) are true.
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F) Both (c) and (d) are true. G) All of (a), (b), and (c) are true. H) All of (a), (b), (c), and (d) are true. I) None of the above are true. Feedback: A country imports a good when demand > supply, and exports a good when supply > demand. In this example, the demand for A is greater than the supply of A, and the demand for B is smaller than the supply of B, so good A is imported, and good B is exported. The value of exports = P*(S-D), and the value of imports = P*(D-S). In this case, the value of imports is 2*(15 - 10) = 10, and the value of exports is 1*(25 -15) = 10, so net exports = 0. Since there are only these two goods, the current account is balanced. Since the current account + financial account = 0, this means that 0 + financial account = 0, or financial account = 0. Correct Answer(s): B 6. Which of the following transactions would be recorded as a credit in the U.S. balance of payments? A) Imports of clothes from China. B) Shares of stock in a U.S. company purchased by a Japanese firm. C) Both of the above. D) None of the above. Feedback: Any sale of American goods, services, or assets to non-residents is recorded as a credit in the U.S. balance of payments. Correct Answer(s):
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This note was uploaded on 09/14/2009 for the course ECON 340 taught by Professor Leidholm during the Summer '08 term at Michigan State University.

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exam 2 - 3. For a particualr economy, suppose that the...

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