If the U.S. is viewed by foreigners as a great nation in which to invest, generating a large inflow of foreign investment, this will cause the U.S. to run a
Answer(s): C
If foreigners invest often in the U.S. the U.S. will tend to run a capital account surplus. By definition of the balance of payments, the U.S. must also tend to run a current account deficit since these two accounts must counteract each other and sum to zero.
Another name for flexible exchange rates is:
Flexible exchange rates, also called floating exchange rates, are determined by market forces.
Suppose the lowest-wage state in the U.S. is West Virginia and the highest-wage state is New York. Which of the following would be true?
Low-wage and high-wage states (like countries) are better off if they are allowed to freely trade with each other.The comparative advantage of low wage states will be in the production of labor intensive goods while the advantage for high wage states will be in the production of capital intensive goods. By specializing in the area of their comparative advantage, total production for each state will increase as will real income.
The domestic demand Q for a good A at a price P is given by Q = 500 - 5P while the supply function is given by 300 + 3P. The world price for good X is 19.If the government imposes a 10% tariff on imports, the revenues of the domestic producers will
First note that without imports, the price prevailing in the domestic market will satisfy 500 - 5P = 300 + 3P, giving P = 25. The world price is 19 and with a 5% import tariff, it becomes 19 * 1.1 = 20.9. Since this price is lower than 25, there will continue to be imports and the price prevailing in the domestic market after the tariffs will equal 20.9. Before the tariffs, the producers supply a quantity equal to 300 + 3 * 19 = 357 and have revenues of 357 * 19 = 6,783. With the tariff in place, the producers produce 300 + 3 * 20.9 = 362.7 units and have revenues of 362.7 * 20.9 = 7,580. Thus, the revenues increase by 7,580 - 6,783 = 797.Note that we have implicitly used the fact that the domestic producers do not have to pay the tariff and pocket the entire higher price.
What gives the home currency price of a certain quantity of the foreign currency quoted?
Answer(s): D
For example, the price of foreign currency is expressed in French francs in France and in Deutsche marks in Germany. Thus, in France, the Deutsche mark might be quoted at FF 4, whereas in Germany, the franc would be quoted at DM 0.25.
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