AnswerKey for TERM TEST 3 PART B FALL 2010

AnswerKey for TERM TEST 3 PART B FALL 2010 - Econ 3H03 Fall...

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Econ 3H03 Fall 2010 Term Test 3 Solutions December 3, 2010 Prof. Krishnakali SenGupta All 3 versions of the test have the same answers. 1 Classify on the Canadian BOP. 3x2=6 marks. (a) Canadian national working in the US: + EX Foreign Service - credit entry - CA Earning a salary in $US: - IM Foreign Assets - debit entry - FA ↓ - desirable NFIA (b) Purchase of Chocolate: - IM - debit entry - CA Payment with a traveler’s cheque: + EX Foreign Assets - credit entry - FA (c) Borrowing funds: + EX Home Asset - credit entry - FA Pay in $US: - IM Foreign Assets - debit entry - FA 1
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2 Explain the J-curve effect. 3 marks For full marks it was important to have a graph and write/explain properly the value and volume effect on the trade balance. If nominal depreciation occurs at time t it means that P imports P exports takes time to adjust In the short run : value of the TB = [value of EX - value of IM] . In the long run : volume of TB = [volume of EX - volume of IM] In the short run, value effect >
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