Exam 5: The Open Economy

Starting from trade balance,if the world interest rate falls,then,holding other factors constant,in a small open economy the amount of domestic investment will _____ and net exports will _____.

If the real exchange rate depreciates from one Japanese good per Canadian good to 0.5 Japanese good per Canadian good,then Canadian exports ______ and Canadian imports ______.

Consider a small open economy whose demand and domestic supply of capital relationships are R = 30 - (1/2)K and K = 7R,respectively (where K and R denote capital and its marginal product).Capital is perfectly mobile internationally,and the yield on capital (R)in the rest of the world is 6. I: GNP exceeds 90 percent of GDP in this country. II: Labour's share of GDP in this country is two-thirds.

In a small open economy,policies that increase:

Tax breaks for capitalists "trickle down" to labourers in:

If a small open economy is in long-run equilibrium with no foreign debt:

Protectionist policies implemented in a small open economy with a trade deficit have the effect of ______ the trade deficit and ______ the quantity of imports and exports.

In the long-run,increased national saving must I: increase the income of the owners of capital in a closed economy. II: increase the income of the domestic owners of capital in a small open economy.

If domestic saving is less than domestic investment,then net exports are ______ and net capital outflows are ______ .

In a small open economy,if exports equal $5 billion and imports equal $7 billion,then there is a trade ______ and ______ net capital outflow.

The value of net exports is also the value of:

If the real exchange rate between Canada and Japan remains unchanged,and the inflation rate in Canada is 6 percent and the inflation rate in Japan is 3 percent,the:

If net capital outflow is positive,then:

Net capital outflow is equal to:

In the basic model of a small open economy,if the government encourages investment,say through an investment tax credit,investment:

Protectionist policies in a small open economy do not alter the trade balance because the:

The law of one price is enforced by:

Assume that in a small open economy with full employment,consumption depends only on disposable income.National saving is 300,investment is given by I = 400 - 20r,where r is the real interest rate in percent,and the world interest rate is 10 percent.a.If government spending rises by 100,does investment change? What is the level of investment after the change? b.Does the trade balance change if G rises by 100? If it changes,does it increase or decrease,and by how much? c.Does net capital outflow change if G rises by 100? If it changes,does it increase or decrease,and by how much? d.Will the real exchange rate rise,fall,or remain constant as a result of the change in G?

If purchasing-power parity held,if a Big Mac costs $2 in Canada,and if 10 Mexican pesos trade for $1 Canadian dollar,then a Big Mac in Cancun,Mexico should cost:

In the basic model of a small open economy,when the government reduces national saving,the equilibrium real exchange rate: