Question

1-If P= 200. P*=180, and the e= 0.972.What is the value of the real exchange rate, (e)? *

2-Another name given to net exports is *

3-If Lebanon has a trade deficit, it

4-If government purchases increase, national saving will ______ and the equilibrium real exchange rate will _____ *

5-In a small open economy, if a country begins in a position of balanced trade, what happens when the government increases taxes? *

Answer 1

1) Real exchange= e*(p/p*)=0.972*(200/180)=1.08

2) Another namw of net Exports is trade balance.

3)If Lebanon has trade deficit then it's Imports are higher than Exports.

4) National saving= Y-C-G, so Increase in government spending will decrease national saving and increase real exchange rate ,due to increase in domestic price .

5) Increase in taxes will decrease disposable income and thus lead to decrease in Imports,so trade balance will improve and there will be surplus of trade.