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Unformatted text preview: 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 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] ↓ ....
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This note was uploaded on 01/06/2011 for the course ECON 3h03 taught by Professor Gupta during the Fall '10 term at McMaster University.
- Fall '10