1. Explain why there is a chance that the social security trust fund may be depleted by 2035. Does this mean that social security will be bankrupt and will not be able to make any payments to retirees after 2035?
2. Consider the savings-investment graph for the (large) open economy case.
a, Draw two graphs, one for home and another for foreign. Show the equilibrium world interest rate, such that the home country has a current account deficit and the foreign country has a current account surplus.
b, Show what happens in the above graph when there is an increase in government spending in the home country.
3. A Japanese television sells for ¥100,000 and a dollar is equal to ¥100. What is the dollar price of the television?
4. Three-wheel cars made in North Edsel are sold for 5000 pounds. Four-wheel cars made in South Edsel are sold for 10,000 marks. The real exchange rate between North and South Edsel is four three-wheel cars for three four-wheel cars. What is the nominal exchange rate between the two countries? State your answer in units of marks/pound.