Chapter 11, Basic Determinants of Exports and Imports Video Solutions, Macroeconomics for managers

Problem 1

The Export-Import Bank helps Boeing by providing various subsides on aircraft sold to foreign countries. Boeing says it needs this help to offset subsidies given to Airbus Industrie by European governments, and would lose sales otherwise, hence reducing American jobs. Thus personal and corporate income tax payments would decline. How would you determine whether the American taxpayers are getting their money's worth?

Heather Duong

Numerade Educator

05:09

Problem 2

Assume that US imports have an income elasticity of 1.3 and a price elasticity of -0.5 , and US exports have an income elasticity of 1.2 and a price elasticity of -0.7 . They also have a "repercussion elasticity" of 0.5 , reflecting changes in GDP the previous year. To simplify matters, assume that both exports and imports are $10 \%$ of GDP. Determine what happens to the US trade balance this year and next when:
(A) An easier monetary policy boosts the growth rate by $1 \%$.
(B) Export subsidies equal to $2 \%$ of total exports are granted.
(C) The US reduces the average tariff rate from $4 \%$ to $2.5 \%$.
(D) US costs of production rise $2 \%$, hence boosting export prices by that amount.
(E) An inflow of foreign saving boosts the value of the dollar by $8 \%$.

Karan Sood

Numerade Educator

00:35

Problem 3

When energy shocks have occurred in the past and the price of imported oil has soared, both the US trade balance and the value of the dollar have increased, even though the US imports about half its oil. Explain why this occurs. (Hint: what happens to the foreign currency values of Europe and Japan, which import almost all their oil?)

Jennifer Stoner

Numerade Educator

02:03

Problem 4

Suppose the value of the Japanese yen rises $20 \%$, but in order to maintain market share in the US, major Japanese companies decide not to raise the prices. As a result, their imports do not change, but profits of Japanese manufacturers decline, so they import less capital equipment from US machinery firms. Taking the effect on both consumers and producers into account, is the US better or worse off based on the Japanese decision to hold import prices constant? Is Japan better or worse off?

Pragya Ahuja

Numerade Educator

02:38

Problem 5

In 1999 Brazil was forced to devalue the real by almost $50 \%$, and in 2002 Argentina was forced to devalue the peso by almost $50 \%$. According to the static model, that would boost net exports and raise GDP. However, both countries plunged into a deep recession. Explain why that happened.

Pragya Ahuja

Numerade Educator

01:46

Problem 6

The following graph shows a fairly high correlation between the ratio of capital spending to GDP and the inverted ratio of net exports to GDP over the post-WWII period in the US - i.e. the bigger the trade deficit, the higher the investment ratio. Explain the causal relationship between these two series. Would you expect this relationship to continue in the future?

Jennifer Stoner

Numerade Educator

01:37

Problem 7

The dollar declined sharply in 1973-4 and 1977-8, and those declines were accompanied by sharply higher inflation. However, when the dollar declined even more sharply in 1986-8, the rate of inflation did not rise at all. What explains the different behavior of inflation in those two periods?

Jennifer Stoner

Numerade Educator