Econ2102 Assignment 2 - Econ2102 Assignment 2 Question 1...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ2102 Assignment 2 Question 1 (i) As we can see from the graph above, the ratio of Trade balance to GDP reaches a peak at 1981 which is 3% and decreases dramatically down to a bottom at 1988 to 1989, after that it remain negatively fluctuating until 2006 reaches the bottom -4%. The higher the ratio, we say the lower consumption is in the economy in that period derived from the equation of : NX=Y-C (ii) Correlation coefficient Period -0.3507 t -0.5310 t+1 -0.35 t-1 -0.55 t+2 0.51 t-2 (iii) The correlation coefficient is descriptive. It measures the co-variation in the magnitudes of two things. In this data the absolute values are relatively high, but most of them are negatively correlated. From the data we can say that the future GDP growth is more likely having a strong correlation with the trade balance. (iv) An open economy can engage in inter-temporal trade. Permanent income shocks for example the level of income is higher than any future periods which will lead to a comparable adjustment in consumption which implies a negligible movement in the current account; If the shock is transient, this theory first states that if output increase in period one, the economy in period one would run a trade balance surplus in response to the transitory increase in income. This seems to correspond with the result because Z3283987 Tianyi Ai Econ2102
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
correlations between TB/y and dy in time t is positive (0.2674). However consider the equation TB=saving=NX
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/11/2011 for the course ECON 2102 taught by Professor ... during the Three '10 term at University of New South Wales.

Page1 / 4

Econ2102 Assignment 2 - Econ2102 Assignment 2 Question 1...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online