Question 1

Explain the relationship between the current account balance, national saving, and investment. Use this relationship to explain the current account deficit in the U.S.

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Question 2

Using the ZZ- Y and NX graphs, illustrate graphically and explain what effect an increase in foreign output will have on output, exports, imports, and net exports. Clearly label all curves and clearly label the initial and final equilibria.

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Question 3

Explain why the demand for domestic goods curve (ZZ) has a different shape than the domestic demand curve (DD).

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Question 4

Suppose a country is experiencing a situation where output is above the natural level of output and a trade deficit. Further assume that the policy makers' goals are to achieve the natural level of output and balanced trade. Given this information, what type of exchange rate and/or fiscal policy can be used to achieve simultaneously these two goals? Explain.

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Question 5

Explain the determinants of exports and imports.

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Question 6

Explain why the multiplier in an open economy is different from the multiplier in a closed economy.

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Question 7

Suppose a country's output is below the policy makers' desired level of output and is experiencing a trade surplus. Assume that the policy makers' goals are to achieve the desired level of output (i.e., the natural level of output) and balanced trade. Given this information, what type of exchange rate and/or fiscal policy can be used to achieve simultaneously these two goals? Explain.

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Question 8

Explain what the J- curve is and why it occurs.

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Question 9

Assuming the Marshall- Lerner condition holds and using the ZZ- Y and NX graphs, illustrate graphically and explain what effect a real exchange rate depreciation will have on output, exports, imports, and net exports. Clearly label all curves and clearly label the initial and final equilibria.

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Quiz 19: The Goods Market