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Flashcards in Problem Set 1 Deck (9)
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1
Q

Explain the effect on the balance of payments for the US, with an American university buying several park benches from Spain and pays with a $120,000 check.

A

import so CA falls by 120,000, Financial account +120,000 as you are exporting dollars

2
Q

Explain the effect on the balance of payments, with Floyd Townsend of Tampa Florida buying $5000 worth of British Airline stocks from Citi Bank New York and paying with U.S dollars

A
  • Paying with US dollars, means you are exporting dollars therefore a positive entry on the financial account
  • Buying a foreign share means a negative contribution to the Financial account.
3
Q

Explain the effect on the balance of payments: A French consumer imports Jeans from America and pays with a check drawn from a US bank

A
  • Export so CA increases by X ammount for the US
  • Because its paid with in $ you are importing more US dollars into the economy therefore is a negative entry on the financial account by X amount
4
Q

Explain the effect on the Balance of Payments: An American company sells a subsidiary in the US, and with the proceeds buys a French company;

A
  • +ve entry as they are exporting dollars which they use to pay for the French company.
  • -ve entry as they buy a foreign company
5
Q

Explain the effect on the Balance of Payments: A group of American friends travel to Costa Rica and rents a vacation home for $2500. They pay with a US credit card.

A
  • Exporting $ leads to a positive contribution on the financial account
  • You are paying with $ for Costa Rica services, therefore this counts as an import.
6
Q

Explain the effect on the Balance of Payments: The US sends medicines, blankets, tents, and nonperishable food worth $400 million dollars to victims of an earthquake in a foreign country.

A
  • Negative entry in Net unilateral transfers in the form of aid as you as giving $400mil away
  • Positive entry of $400 mil on the financial account even though you are not exporting the money.
7
Q

What Is the current account equal to?

A

Current Account = Trade Balance + Income Balance + Net unilateral transfers

8
Q

What is the NIIP at the end of 2015 equal to?

A

NIIP (end 2015) = NIIP (start of 2015) + CA

9
Q

How are net investment income and the NIIP related?

A

NII = rNIIP, Net investment income is the return gained from your NIIP