Chapter 32. Exercises 1-5. A Macroeconomic Theory of the Open Economy.

Описание: Principles of Economics. Chapter 32. Exercises 1-5. A Macroeconomic Theory of the Open Economy. Gregory Mankiw. 8th edition.
1. Japan generally runs a significant trade surplus. Do you think this is most related to high foreign demand for Japanese goods, low Japanese demand for foreign goods, a high Japanese saving rate relative to Japanese investment, or structural barriers against imports into Japan? Explain your answer.
2. Suppose that Congress is considering aninvestment tax credit, which subsidizes domesticinvestment.
a. How does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance?
b. Representatives of several large exporters oppose the policy. Why might that be the case?
3. The chapter notes that the rise in the U.S. trade deficit during the 1980s was due largely to the rise in the U.S. budget deficit. On the other hand,the popular press sometimes claims that the increased trade deficit resulted from a decline in the quality of U.S. products relative to foreign products.
a. Assume that U.S. products did decline in relative quality during the 1980s. How did this affect net exports at any given exchange rate?
b. Draw a three-panel diagram to show the effect of this shift in net exports on the U.S. real exchange rate and trade balance.
c. Is the claim in the popular press consistent with the model in this chapter? Does a decline in the quality of U.S. products have any effect on our standard of living? (Hint: When we sell our goods to foreigners, what do we receive in return?)
4. An economist discussing trade policy in The New Republic wrote: “One of the benefits of the United States removing its trade restrictions [is] the gain to U.S. industries that produce goods for export. Export industries would find it easier to sell their goods abroad—even if other countries didn’t follow our example and reduce their trade barriers.” Explain in words why U.S. export industries would benefit from a reduction in restrictions on imports to the United States.
5. Suppose the French suddenly develop a strong taste for California wines. Answer the following questions in words and with a diagram.
a. What happens to the demand for dollars in the market for foreign-currency exchange?
b. What happens to the value of the dollar in the market for foreign-currency exchange?
c. What happens to U.S. net exports?