Imagine That (film)

IMAGINE THAT THE ECONOMY OF JAPAN FINDS ITSELF IN THE FOLLOWING SITUATION

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• published: 09 Nov 2016
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http://theperfecthomework.com/imagine-that-the-economy-of-japan-finds-itself-in-the-following-situation-the-government-budget-has-a-surplus-of-1-of-japans-gdp-private-saving-20-of-gdp-and-physical-investment-is-18-of-gdp/ Imagine that the economy of Japan finds itself in the following situation: the government budget has a surplus of 1% of Japan’s GDP; private saving = 20% of GDP; and physical investment is 18% of GDP. (a) Based on the national saving and investment identity, what is the current account balance (as a percentage of GDP)? (You do not have to look up anything! Simply use these percentages (in place of numbers) in the identities.) (b) If the government budget surplus falls to zero, how will this affect the current account balance? 2. (Chapter 11) In each of the following short-run cases, specify whether the events cause a shift of a curve or a movement along a curve. Determine which curve(s) and the direction(s) of the change. (a) A decrease in the value of the dollar vis-à-vis other currencies. (Note: we have two effects here: (i) American producers now pay more in dollar terms for foreign steel, a major commodity used in production, which affects aggregate supply; (ii) U.S. exports in general become more competitive; imports, less competitive, which, of course, affects aggregate demand. (b) A decrease in the quantity of money by the Federal Reserve Bank (U. S. Central Bank), which, for a given Price level, increases the supply of bonds in the market, as the Fed sells bonds to withdraw money from the economy, lowering the price of bonds and bidding up the market interest rate.. (In essence, the price of bonds falls, i.e., the interest rate increases, to encourage agents to purchase bonds and give up money.) (c) Increased union activity leads to higher wages. (d) A fall in the aggregate price level increases the purchasing power of households’ and firms’ money holdings. As a result, they borrow less and lend more, lowering the economy-wide interest rate. (Be careful. What gives rise to the change?) (e) Firms begin to fear that a recession is imminent and reduce investment spending.