Question

Note: No data missing, these are general economic market forces questions, please explain answers

-If interest rates on European assets increase, then we expect that the Euro will depreciate?

-If the U.S. imposes an import tariff on an imported product, then the US as a whole will be better off relative to consumer surplus, producer surplus, and tariff revenue?

-An economy with a growing population sees continued growth in the capital stock and output?

-At given interest rates, if the EXPECTED rate at which we exchange dollars and euros increases, then we expect that the dollar per euro spot exchange rate today increases?

-Suppose second quarter GDP increased by 0.6 percent relative to first quarter GDP. Annualized second quarter growth is then equal to about 2.4 percent.

Thank you!

Answer 1

--- The euro will depreciate because a bank's net worth is predicted to decline when interest rate rise because the present value of bank's assets is more sensitive to changes in interest rate than the present value of its liabilities.The changes in interest rates do not have a large effect on the value of these loans even when they are extended for long maturities. The customer depositis especially from households,are rather insensitive to movement in interest rate.

---- The U.S. will be better off as a whole because tariff are paid to the customs authority of the country imposing the tariff, the tax owed on imports are paid by domestic consumers and not imposed directly on the foreign country's exports.Often goods from abroad are cheaper because they offer cheaper capital and labour if those goods become expensive then the consumers tend to lose out with tariffs, where the taxes are collected domestically.Tariff benefits thedomestic producers by increasing producer surplus but domestic consumers see a small consumer surplus and U.S. tariff revenue will also go up.

---- A growing population sees a continued growth in the capital stock and output because of capital formation, growth of the labour force and technological progress conjointly affect the level of an economy's output and its rate of growth of per capita income over time. The primary importance has been assigned to the accumulation of capital.The supply and demand for gods help us to know the growth by determining how much output is produced at any given time as also the pattern of allocation of the output among alternative uses.

----- Exchange rate can have what is called the spor rate which is current market value because at expected rate if we exchange dollar and euro it increases then the dollar per euro exchange rate today increases.Alternatively an exchange rate may have a forward value which is based on expectation for the currency to rise or fall versus its spot price.The traders have the view that the eurozones will ease monetary policy versus the U.S. in this case the traders could buy the dollar versus euro that resulting in the value of euro falling.

----- We use the formula below to annualized second quarter growth

=0.006

that is equal to 2.4 percent