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ECON6008 S1 2023

Assignment: Tutorial 1

1.   We have the following data for a hypothetical closed economy:

GNP = $9,000

Consumption (C) = $7,500

Government Purchases (G) = $1,600

Tax Collections (T) = $1,600

What is the value of private savings SP? $ .  (Enter your answer as an integer. Include a minus sign if necessary.)

What is the value of government savings Sg? $ .  (Enter your answer as an integer. Include a minus sign if necessary.)

In this closed economy, what must be the value of investment expenditure? $ .  (Enter your answer as an integer. Include a minus sign if necessary.)

2. We have the following data for a hypothetical open economy:

GNP = $12,000

Consumption (C) = $8,200

Investment (I) = $1,000

Government Purchases (G) = $1,600

Tax Collections (T) = $1,600

What is the value of total savings S? $ .  (Enter your answer as an integer. Include a minus sign if necessary.)

What is the value of the current account balance CA? $ .  (Enter your answer as an integer. Include a minus sign if necessary.)

3. Private saving can be given by the following equation:

Sp = I + CA + (G T).

This equation can be rewritten as:

CA = Sp I + (T G) .

Nowadays, some people recommend restrictions on imports from China (and other countries) to reduce the American current account deficit. How would higher U.S. barriers to imports affect private saving, domestic investment, and       government deficit?

A. It will certainly reduce private savings.

B. It will increase investment.

C. It will reduce government budget deficit.

D. It is impossible to tell without a general equilibrium model.

Do you agree that import restrictions would necessarily reduce a U.S. current account deficit?

A. Yes, because it will reduce imports.

B. No, because we cannot tell what general equilibrium effects will be.

4.   A U.S. − owned factory in Britain bought additional machinery and paid for it by its local earnings.

Describe how this transaction generates two entriesa credit and a debitin the American balance of payments accounts, and describe how each entry would be classified.

The main transaction will be represented as a ( 1) on U.S. (2) account.

The offsetting transaction will be represented as a (3) on U.S. (4) account.

(1)

no change debit credit

(2)

current

(3)

no change credit debit

(4)

financial

5.   A tourist from Detroit ate at an expensive restuarant in Lyons, France, and paid for it with a traveler's check.

Describe how this transaction generates two entriesa credit and a debitin the American balance of payments accounts, and describe how each entry would be classified.

The main transaction will be represented as a ( 1) on U.S. (2) account.

The offsetting transaction will be represented as a (3) on U.S. (4) account.

(1)

debit credit        no change

(2)

current

financial

(3)

credit debit         no change

(4)

current financial