Exercices

Exercise 1
• Suppose an economy’s national accounts are
GDP =100, C = 70, I = 40, G = 20, and EX = 20.
• Using the national income identity find the
value of imports (IM). What is the CA balance?
• What is the savings rate? What would the
government, private, and total savings rate be
if the government introduced taxes T = 10
(other variables remain unchanged) ?
 Exercise 2
• Is it possible for a country to have a current
account surplus and balance of payments
deficit at the same time?
 True/False/Uncertain questions
• Countries like China have the best of both
worlds: they simultaneously run large CA
surpluses and attract foreign private capital.
 Exercise 3
• we consider a hypothetical country (called Kumar) that uses $ as its
currency. (ex: Panama). It has a CA deficit of $500 billion and a private
non-reserve financial account (NRFA) surplus of $250 billion.
• What is Kumar’s official settlements balance (OSB)?
• Is Kumar’s net foreign asset position rising or falling?
• Assume that foreign central banks are neither buying nor selling any
claims they might hold on Kumar. What can we infer is happening to
the Kumari central bank’s foreign exchange reserves? That is, is Kumar
buying or selling foreign exchange reserves and how much?
• Now, suppose we learn that the U.S. Fed has purchased $300 billion of
Kumari assets over the past year. How does this change the answer we
gave to part (c)? Can you summarize the balance of payments accounts
in this scenario?
 Exercise 4
• Suppose the Fed wants to fix the US exchange
rate with the yen at 1 yen = 1/150 $
• If the equilibrium market rate were
significantly higher at 1 yen = 1/120 $, what
would the Fed need to do to get the fixed rate
of 1/150 $ per yen?
• What would be the effect of these actions on
the money supply in the US?
 Exercise 5
• Multinational firms generally have production
plants in a number of countries.
• If the dollar depreciates, what would you
expect to happen to outsourcing by American
companies?