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ECMC61_Assignment_1_Fall_2011 - ECMC61 LEC 01 and LEC 02...

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ECMC61 – LEC 01 and LEC 02 International Economic: Finance Assignment 1 Due: On or before Thursday, October 20, 2011, 1:00pm, IC 286 (Note: Assignment submitted after Thursday, October 20, 1:00pm WILL NOT BE accepted under ANY circumstance.) Instructions: You can submit individual or group assignment. If you submit group assignment, there should be NO MORE THAN FIVE students in your group and you just have to submit ONE copy. WORK WITH STUDENTS BELONGING TO THE SAME GROUP ONLY. A title page MUST be attached with your assignment; it MUST include your name(s), student number(s), and your lecture section(s). Staple your assignment (Paper clip is not accepted). A PENALTY OF 10% OF THE TOTAL MARKS WILL BE IMPOSED IF YOU DO NOT HAVE A TITLE PAGE OR STAPLE YOUR ASSIGNEMNT. No late assignment will be accepted. Label your graph; otherwise, marks will be subtracted. Do not write E/q/E e increases/decreases ( / ) in your answer, you have to answer whether the currency appreciates/depreciates. POINTS WILL BE SUBTRACTED IF YOU DO NOT FOLLOW THIS INSTRUCTION . No credit will be given if you do not show your work. Your answer should be structured in a way such that those know little about economics will have no difficulty in understanding your argument/answer. Total marks: 100 points. Question 1 (20 points) The world consists of three countries, A, B, and C, only. Table 1 (on page 2) provides some macroeconomic data for these three countries. Additional information about these countries: The central banks of all three countries do not make any transaction with the private sector, i.e., the central banks only make transactions with other countries’ central banks. Country-specific information: Country A: The purchases of goods and services by households are equal to 60% of the country’s output, which are 10-percentage points higher than the purchases done by C’s households. The government collects 31.5% of output as taxes, and it is running a budget surplus of 1000. The country purchases 2400 worth of goods and services from B. Country B: The country spends 13% of output to replace deprecated (physical) capital and acquire new capital. 1 ECMC61 Assignment 1 (Fall 2011)
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The country’s official reserves rise by 500. Residents of B pay out a total of 366 asset transfers to A’s and C’s residents. Of these transfers, residents of A received 228 from B and residents of C get the remaining amount. There is no market transaction involved in these transfers. In addition, these transfers of wealth are the only transfers carried by residents of all these three countries. Country C: The country runs a balanced BOP even it has twin deficits, and the size of each deficit reaches 5% of GDP. Although the country sells 1100 worth of goods and services to A, it runs a trade deficit of 100 with A.
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