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AK_Chapter_12 - SOLUTIONS TO TEXT PROBLEMS Chapter 12...

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SOLUTIONS TO TEXT PROBLEMS Chapter 12 Questions for Review 1. NX = exports - imports. NCO = purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. NX = NCO. 2. S = I + NCO. 3. Nominal = 100 yen per $. Real = 2 Japanese cars per Canadian car. 4. Arbitrage. 5. a dollar would buy fewer yen. 6. Arbitrage. Problems and Applications 1. a. exports unchanged, imports increase, net exports decrease. b. exports rise, imports unchanged, net exports increase. c. exports unchanged, imports rise, net exports decline. d. exports increase, imports unchanged, net exports increase. e. exports increase, imports unchanged, net exports increase. 2. a. shipping costs much lower. b. communications costs much lower. c. software much easier to transport (it can now be downloaded). d. transportation costs much lower. 3. Foreign direct investment = active. Foreign portfolio investment = passive. A corporation more likely to engage in foreign direct investment, while an individual investor is more likely to engage in foreign portfolio investment.
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