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PS07 - EC 340 Spring 2011 Problem Set 7 Divide a sheet of...

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Unformatted text preview: EC 340 Spring 2011 Problem Set 7 Divide a sheet of paper into four quadrants. Label the columns of the resulting table as credits (+) and debits (‐), and label the rows as current account and financial account. You should then have a table that resembles the following: Credits (+) Debits (‐) Current Account Financial Account This table represents the U.S. balance of payments statement. Place each of the following entries in the proper cell in the table. 1. An auto assembly plant in Michigan buys $1 million of parts from a Canadian supplier. 2. The auto assembler pays for the parts by writing a check drawn on an account at Michigan National Bank. 3. A U.S. Mutual Fund buys $10 million of shares of stock in a Brazilian company. 4. The U.S. Mutual Fund pays for the stock by writing a check on a bank account that it maintains in Brazil. 5. The American Red Cross donates $5 million of medical supplies to earthquake relief efforts in Japan. (Hint: there should be two entries for this item.) 6. An American pension fund receives $1 million of interest income from British bonds that it owns. 7. The interest income on British bonds is paid with a check written on a U.S. bank account that the bond issuer holds. 8. A Canadian university hires an American architect to design a new residence hall. 9. The Canadian university pays the architect $1 million with a check written on a U.S. bank account. 10. An American company pays $1 million to its Indian employees who staff its call center in Bangalore. 11. The company pays with checks drawn on its British bank account. 12. Having entered all of the above information, calculate the balances of the current account and the financial account of the U.S. balance of payments. 13. Suppose that national saving is $1,000 and investment spending is $1,200. What is the value of net exports? 14. Suppose that net exports are $400, private saving is $1,500, and government saving is ‐$600. What is the value of investment spending? 15. Suppose that the government reduces taxes by $100. Further suppose that this does not change government spending, private saving, or investment. What will be the impact on net exports? 16. Suppose that GDP is $14,000, consumption spending is $10,000, Investment spending is $3,000, and government spending is $2,000, and exports are $1,000. What is the value of imports? ...
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