1. Think about an open economy that trades freely with the rest of the world. There are no barriers to trade and no frictions. In other words, there are no tariffs and taxes and no regulatory impediments to trade. Also assume that the world prices are MORE than the domestic prices. What will happen to the exports of the country if the government decides to cut income taxes significantly?
You are highly encouraged to provide graphical support to your answers.
2. Think about an open economy that trades freely with the rest of the world. There are no barriers to trade and no frictions. In other words, there are no tariffs and taxes and no regulatory impediments to trade. Also assume that the world prices are LESS than the domestic prices. What will happen to the exports/imports of the country if the government decides to allow importation of new capital goods and technologies that will raise productivity significantly?
3. Discuss how the financial system brings together the borrowers and savers. Discuss the concept of loanable funds. How do the demand and supply of loanable funds determine the equilibrium interest rate in the market? How is that rate of interest expected to behave if the government runs a large budget deficit? Describe the precise pathways. You are highly encouraged to provide graphical support to your answers.
4. What are the key differences between GNP and GDP? Are they expected to be the same or not? What information does the difference between GDP and GNP convey to you? How will the GDP and GNP of Japan and the USA are expected to change if Toyota decides to make additional investments in Tennessee and Ford invests heavily in China?