Chapter 5 The Open Economy Essay

As for the combination of cash and new shares, shareholders can take part of their money

Another issue is export. What proportion of the nation's output that is potentially exportable is in fact exported? One way to address this more narrow question is to begin with the domestic output of the goods-producing sectors of the economy, as measured by the value of final exports of goods, plus change in goods inventories,

|0 |$ 60 |$ 0 |$ 60 |$ 0 |$ 0 |$ 0 |$ 0 |

Answer the next question on the basis of the following production possibilities tables for countries Alpha and Beta:

4. In an open economy, trade is allowed between countries. Assume a consumer purchases $1,000 worth of furniture manufactured in China. Answer the following:

basis of the assets transferred, the taxpayer will recognize gain to avoid having a negative basis in the stock.

b. Explain what impact the change in the value of the dollar between 2008 and 2009 will have on the United States current account.

30. Suppose that the economy is in equilibrium with a trade surplus and with saving

The precise structure of inactive investment in a foreign nation depends largely on the treatment of the structure under the tax laws of the host country and the U.S.

The Australian economy marks external stability as an important objective because it can influence other important aims such as economic growth, unemployment and inflation. External stability is the concept of sustaining a nation’s external accounts so that in the future, it is able to service its foreign liabilities and can avoid currency volatility. When looking at external stability, we must examine Australia’s balance of payments, which records all economic transactions between Australia and the rest of the world. Australia’s balance of payments has two components, which is the current account and the capital and financial account. The current account measures the receipts and payments for trade in goods and services, transfer payments and income flows, while the capital and financial account shows international borrowing, lending, purchasing and sales of assets.

11. Draw the consumption possibilities curve for each country on the same graph you drew for question 9.

A free market is a type of market that the government is not involved in. Since the government does not care about what happens, the free market is also called “hands-off” or “let it be economics”. The government is limited to protect the citizens from the danger and that is the major goal for the government. In the free market economy, there are three components of the free market economy: competition, active but limited government, and the self-interest. Competition is one of the main components of the free market economy. Competition means that the companies compete with one another to make more benefits to themselves. According to the concept of the free market economy, the competition means a good thing because it is a basic

7. Whether the cash flows of foreign operation directly affect the cash flows of the reporting entity.

While we assume that 50% of German sales are still made in DM, in 1995, 25.9% of Aspen’s 1995 revenues are made in foreign markets, but only in Japan, in the UK and in Germany (increasingly) has the firm priced its products in local currencies. That means that, about 23.8% of Aspen total sales are made in foreign currencies, implying a foreign exchange exposure of $13,670,000. 29.7% of Aspen expenses are abroad and made in local currencies. So, Aspen is also exposed to foreign exchange risk with these expenses, mostly in Japan, Belgium and the UK (28.1% of the total expenses in 1995).

Explain how the international trade flows should initially adjust in response to the changes in inflation (holding exchange rates constant). Explain how the international capital flows should adjust in response to the changes in interest rates (holding exchange rates constant).