A large and persistent external deficit often leads to calls for policy measures such as bilateral trade negotiations, tariffs and important quotas, directed at restoring balance between exports and imports. However, current account deficits ultimately reflect a disparity between savings and investment; fundamental national income accounting identities ensure that the current account is equal not only to the difference between exports and imports, broadly defined, but also to the difference between savings and investment (Krugman 1991).

Therefore, the issue of how current account balance is achieved in practice can be viewed in terms of whether it is savings or investment that adjusts to an external imbalance. To the extent that a country that borrows from abroad does not default on its debt obligations, high current account deficits must eventually be followed by higher national savings or lower investment. In a series of influential articles, Feldstein (1992), argued that while, in the short run, inflows of foreign capital can offset the difference between national investment and national savings, in the long run, the rebalancing of the current account occurs mainly through changes in investment. This is because the country’s saving rate is, in the long run, predetermined by the household's attitudes toward savings and borrowing, by the fiscal incentives for private savings, and by the public attitude toward budget deficit.

As such, a country’s savings rate ultimately constrains the rate of investment; low levels of national savings lead, in the long run, to low levels of investment, with potentially important implications for a country's future standard of living. Feldstein’s preferred policy conclusion is that government measures aimed at raising a country’s savings rate will generate an almost one-for-one increase in its long-run investment rate.

While their ability of government to permanently raise a country’s savings rate remains highly controversial, it is still the case that solvency implies the permanent changes in savings or investment must lead to changes in the other variable of approximately the same amount.

That's all info and they ask:

How interest rate will change in response to A2 shock?

Suppose that the following equations govern planned spending in the US:
C = 500 + 0.75(Y-T)
T = 0.2Y – 800
I = 3000 – 64000r
G = 3200
NX = 1000 – 10e (e =“trade weighted” real ex. rate. As always, increase in e = $ appreciation)
NFO = 500 – 60000(r – r
FOR)
r
FOR = 3%
a) Explain how NFO responds to an increase in the Home interest rate, and an increase
r
FOR, based on the equation. What economics story does this coefficient represent?
b) We’re going to look at an increase in the home interest rate from 2.5% to 3%. First,
let’s take a look at the new international piece of the model. Calculate NFO, NX,
and the exchange rate for each value of the interest rate. Based on these numbers,
draw the NFO=NX graph for the interest rate increase, and talk through the
economics: how the change in interest rates changes NFO, and how that leads to
changes in the exchange rate and NX.
c) Now, combine the equations above to find an expression for AE, then impose the
Y=AE expression to derive the IS curve. As in lecture, work with AE = C + I + G
+NFO to end up with Y=f(r). Use your IS curve to calculate the level of short-run
GDP for the original interest rate of 2.5%, and the new interest rate of 3%.
d) Use the multiplier math framework (Final Chg GDP = Multiplier x Initial Chg in
Spending) to explain this change in GDP? The change in NX from part b is part of
this story, but don’t forget about our pre-PS5 domestic interest rate story – where
else does r show up?
e) It is often said that “monetary policy is stronger in an open economy.” Explain this
statement based on the “domestic” and “international” changes in GDP from part
d). I don’t just want the numbers side of things – what is the underlying economics
story for why monetary policy is more effective when the economy has an
international sector?

Need memo

Format: Facts, Issue, Analysis, Conclusion

Background

You are an audit senior for Burns & Allen, LLP. One of the audit partners received a call from Brenda Parker, CFO of a publicly traded client, Toys For U (“Toys”). Toys is a retailer with 25 locations and is expanding each year. Toys leases retail space on long-term leases ranging from 10 to 15 years. Most of the leases have multiple renewal options. Under current rules, the arrangements are reported as operating leases. Brenda read that changes are coming to reporting for leases and wants to prepare for the changes that will be required. The audit partner at your firm, Erica Dalton, has asked you to prepare a memo to the Toys for U audit file explaining the proposed changes to accounting for leases. She asked that you include an example in the memo.

Required

Write a memo to the “Toys R U Audit File.” Be sure to include the following:

Brief description of current reporting rules for leases

Description of proposed reporting rules for leases

Example of application of proposed rules for a lesseeAssume the following lease terms:

Identifiable Asset: Facility (building) lease

Term 10 years – assume no renewal option

Monthly lease payments beginning at $125,000 per month over the ten year lease term

The risk free rate is 2%, Toys R U borrows at an incremental rate of 6%, and the lessor rate is unavailable

Assume the lease commences on January 1, 2021 and the first payment is due February 1, 2021

Include the following journal entries:

Recording of lease related asset and liability at lease inception – use “Capitalized Lease Asset” and “Capitalized Lease Liability” as account titles

Recording of the monthly expense for the first two months – do each month separately

Attach an Excel worksheet to your memo with the following:

Calculation of the amount of the capitalized lease asset and related lease liability

An amortization schedule for the lease term

Discussion 5 - Controversy 5: Is Butter Really Back? The Lipid Guidelines Debate Using the information found at the end of Chapter 5 about the Controversy: Is Butter Really Back? The Lipid Guidelines Debate. Read first the content in the book, supplement the reading with the power point that emphasizes the main points of the controversy. Then, write a 200-250 word response of the controversy.

The Dietary guidelines for Americans had been emphasizing for decades on the importance of low fat eating. Great changes have been made in the production, and manufacturing of foods, and families have tried new low fat recipes, and lower their overall fat composition. But there is this new debate: besides all of the efforts to cut fat in the American diet, the efforts have been unsuccessful, and people have switched to add more sugar to their diets in order to keep the flavor that fats provided. So, do we need to go back to use more butter to cook, and manufacture foods, and snacks? Or, do we need to continue decreasing the amount of fat in our diets in order to decrease the risk for chronic diseases, especially for cardiovascular disease? In this context, while preparing your response keep in mind the following:

1. If fats are bad for people, why do we keep eating them? And, if fats are bad for people, what can we do in order to decrease the daily consumption of fat?

2. In your opinion, is the use of olive oil a good solution to start consuming healthier fats? And, about the use of fat substitutes such as apple sauce for baking? What do you do personally in order to have a low-fat diet?

3. What kind of lifestyle changes can be done in the U.S. population in order to decrease or, use in moderation the amount of fat in the diet, fast food restaurants, and snacks?

4. Application: share your own experience of trying to eat low fat and/or eating healthier in general. What kind of lifestyle changes have you had to make in order to eat healthy?

Vanessa wants to retire in 25 years with enough saved to be able to withdraw $5,000 monthly for 20 years. She has already accumulated $48,000 in her investment account. Assume that the rate of interest is 4.8% compounded annually for the 25 years of her contributions, and changes to 3.6% compounded monthly for the next 20 years. Determine what annual contributions she has to make for the next 25 years in order to meet her objective.

Tina sells short 1,200 shares of Alpha Inc. that are currently selling at $54 per share. She posts the 50% margin required on the short sale. Her broker requires a 30% maintenance margin. The firm pays no dividends. Tina earns no interest on the funds in her margin account. What is the rate of return on the investment if the price of Alpha stock changes from $54 to $47?

1.   Using the supply and demand model, graphically show the effect of each of the following changes on the equilibrium price and quantity in the market for bacon:
a.   A decrease in the price of sausage links (explain any assumptions you make).

b.   An increase in the price of corn, which is fed to pigs (explain any assumptions you make).

c.   An increase in the average income of consumers (explain any assumptions you make).

d.   The introduction of a price floor on bacon.

36 Armando is a regional manager for, MediParts, a medical equipment manufacturer. He is currently reviewing a quarterly report showing that sales in his region are trending lower than anticipated for the third quarter. Based on the disappointing results he must now attempt to determine the reason for the decline in sales and make the necessary changes to improve sales. Armando is engaged in what important function of management?

A Leading

B Controlling

C Planning

D Organizing