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Unformatted text preview: UNIVERSITY OF BRITISH COLUMBIA Department of Economics International Finance (Econ 356) Winter 2005 Term 2 Prof. Amartya Lahiri Final Exam The points corresponding to each question are indicated in parenthesis and add up to 80. All questions have to be attempted. Read through the exam before starting and budget your time carefully. You have 120 minutes to nish the exam. GOOD LUCK! I. (20 points) Indicate whether the following questions are TRUE, FALSE OR UN- CERTAIN giving brief explanations for your answers. Note that answers without proper explanations do not get any credit in exams!! 1. National saving must equal total investment for every country. True . National income accounting tells us that Y = C + I + G + X- M . Hence, we must have ( Y- C- G )- I = X- M CA where CA is the current account. Hence, S- I = CA . Since CA is nothing but the change in foreign assets acquired by the domestic economy, it is foreign investment. Hence, saving must equal the sum of domestic and foreign investment. 2. An unanticipated devaluation decreases the foreign assets of the central bank. False . An unanticipated devaluation causes an increase in income (through a current account improvement). This raises the demand for money. In order to maintain the new peg the central bank has to supply the additional money by buying foreign currency and selling domestic currency. In the process central bank foreign assets increase ....
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This note was uploaded on 04/17/2011 for the course COMM 299 taught by Professor Desrochers during the Spring '08 term at The University of British Columbia.
- Spring '08