11S_Mid2_Sol - ECONOMICS 204 PAGE NUMBER 1 UNIVERSITY OF...

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Unformatted text preview: ECONOMICS 204 PAGE NUMBER 1 UNIVERSITY OF VICTORIA ECONOMICS 204 ANSWERS MIDTERM 2 SPRING 2011 Section 1 (20 marks) Answer ALL 20 multiple-choice questions 1. B 2. A 3. C 4. A 5. D 6. A 7. C 8. D 9. C 10. D 11. C 12. D 13. A 14. D 15. B 16. B 17. A 18. B 19. D 20. C Section 2 (20 marks) 1. Brief explanation of following terms: (a) Discuss: The impact of protectionist trade policy on and NX . (i) At any given value of , an import quota reduces IM , which raises trade balance due to NX = EM IM . This shifts the net demand for dollars to the right and hence appreciates. +0.5 (ii) Since the trade policy doesnt affect S or I , the capital flows and the supply of dollars remain fixed. So is NX , i.e. NX = 0. +0.5 (Recall S = Y C G , the trade policy does not affect Y , C , or G ; the policy also does not affect I , because I = I ( r *) and r * is exogenous.) (iii) The appreciation causes EX to fall as foreign goods and services become less expensive. Since EX is lower but NX is unchanged, it must be the case that IM is lower too, which is what youd expect from a trade policy that restricts imports. +1 (That is why protectionist policies reduce both the quantity of IM and EX .) ECONOMICS 204...
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11S_Mid2_Sol - ECONOMICS 204 PAGE NUMBER 1 UNIVERSITY OF...

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