In: Economics
Q1. Assume that American rice is sold for $100 per bushel, Japanese rice is sold 16,000 yen per bushel, and the nominal exchange rate is 80 yen per dollar. Assume that the nominal exchange rate remains unchanged.
Select one:
a. Buy a bushel of American rice and then sell it in Japan, making a profit of 80,000 yen.
b. Buy a bushel of American rice and then sell it in Japan, making a profit of 100 dollars.
c. Buy a bushel of Japanese rice and then sell it in the US, making a profit of 100 dollars.
d. The buy and sell process would continue until the price of American rice rise higher than the that of Japanese rise.
e. The buy and sell process would continue until no profit can be made
f. A and D
g.B and E
h. C and D
i. C and E
j. None of the above is correct
2. Which of the following would both make a country’s real exchange rate rise ?
Select one:
a. its budget deficit increases and bonds issued in the country become riskier
b. bonds issued in that country become riskier and it imposes an import quota
c. its budget deficit decreases and it imposes an import quota
d. a sudden capital flight
e. None of the above are correct.
3. In the open-economy macroeconomic model, the supply of loanable funds comes from
Select one:
a. the sum of domestic investment and net capital outflow.
b. private saving alone.
c. foreign borrowing alone.
d.Y-C-G.
e. None of the above are correct.
explain plz
Ans 1. Option g
Price of 1 bushel in America = $100
Price of 1 bushel in Japan = 16000 yen
1 yen in dollar value = $ 1/80
16000 yen in dollars = 16000/80 * 1 = $200
Thus, buying 1 bushel in America and selling it in Japan will make a profit of $100.
As this goes on Demand for rise will increase in America and supply of rice will increase in Japan causing price of 1 bushel to rise in America and fall in Japan till the point where price in equalised and no profit can be made.
Ans. Option a
An increase in budget deficit and riskier bonds make foreigners less willing to invest in the domestic country leading to depreciation of the currency and due to increased budget deficit price levels will also increase in the economy causing exchange rate to depreciate.
Ans. Option d
Y - C - T = Private investment
T - G = Government savings
National Savings = Private savings + government savings = Y - C - G
National savings is the source of lonable funds which are demanded for investment purpose and net capital outflow.
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