Capital account transactions include:
Answer(s): D
Capital account transactions are composed of direct investment by Americans in real assets abroad (or by foreigners in the U.S.) and loans to and from foreigners.
The domestic demand Q for a good X at a price P is given by Q = 400 - 2P while the supply function is given by 100 + 4P. The world price for good X is 45 in international markets. All quantities are in thousands of units. If the government imposes a tariff of 5% on imports, the imports will fall by:
Answer(s): C
First note that without imports, the price prevailing in the domestic market will satisfy 400 - 2P = 100 + 4P, giving P = 50. The world price is 45 and with a 5% import tariff, it becomes 45 * 1.05 = 47.25. Since this price is lower than 50, there will continue to be imports and the price prevailing in the domestic market after the tariffs will equal 47.25.Before the tariffs, the producers supply a quantity equal to 100 + 4 * 45 = 280 and domestic consumers demand 400 - 2 * 45 = 310 units. Thus, imports without the tariffs equal 300 - 280 = 30 units. With the tariff in place, the producers produce 100 + 4 * 47.25 = 289 units. The consumers demand 400 - 2 * 47.25 = 305.5 units. Thus, the imports now equal 305.5 - 289 = 16.5 units.
The ________ elasticity of domestic demand for imports and foreign demand for exports is ______.
Answer(s): E
The short run elasticity of domestic demand for imports and foreign demand for exports is inelastic. So a depreciation initially increases import expenditures and export sales. In the long run, the demand for both imports and exports is elastic.
Which of the following would be a debit in the U.S. balance of payments?
Answer(s): B
Since the purchase of a car from a Japanese firm by an American increases the supply of U.S. dollars on the foreign exchange market, this transaction is accounted for as a debit on the U.S. current account.
A(n) ________ in a nation's currency in the foreign exchange market compensates for the nation's high ________ rate.
Exchange rate adjustments permit nations with even high rates of inflation to engage in trade with countries experiencing relatively stable prices. A depreciation in a nation's currency in the exchange market compensates for the nation's inflation rate.
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