Question 1- Below is a roster of transactions for the mythical economy of Freedom. Use this roster of transactions to complete the balance of payments chart which follows. (All transactions are in millions of Freedonian dollars.)
Description Amount
a. Sale of -rock in the Freedonian Balloon Company to U.S. investors $ 8
b. Payment of dividends to Italian shareholders in Freedonia Balloon Co. $ 9
c. Purchase of British tea sets $ 5
d. Purchase of American cowboy hats $ 8
e. Sale of Freedonian cigars to Belgium $ 3
f. Sale of Freedonia's largest hotel to Japanese investors $14
g. Purchase of IBM stock by several Freedonian investors $10
h. Sale of Freedonian harps to Switzerland $22
i. Purchase of Canadian hockey sticks $ 5
j. Rental of hotel rooms by German tourists in Freedonia $ 3
k. Sale of Freedonian croquet mallets to Great Britain $11
l. Purchases of French hams by Freedonian Central Bank $18
m. Foreign aid to Freedonia from Bolivia $ 5
n. Purchases of beef from Argentina $ 4
o. Sale of Freedonian dollars to the U.S. Federal Resent $ 8
p. Remittance of dividends to Freedonian shareholders of Chrysler stock $ 3
q. Purchase of cars from Yugoslavia $12
r. Sale of socks to Australia $ 6
s. Sale of a large Freedonian farm to a British citizen $ 2
t. Purchase of restaurant meals in Israel by Freedonian tourists $ 1
u. Freedonian foreign aid to Mongolia $ 1
The Freedonia Balance of Payments Account (Millions of Freedonia Dollars)
Carnet Account
1. Exports of which:
2. Merchandise
3. Investment Income Received
4. Import of which:
5. Merchandise
6. Investment Income Pad
7. Net Unilateral Transfers
8. Balance on Current Account Financial Account
Financial Account-
9. Freednian assets held abroad (increase -) of which:
10. Official Resent Assets
11. Other Assets
12. Foreign assets held in Freedonia of which:
13. Official Resent Assets
14. Other Assets
15. Balance on Financial Account
16. Statistical Discrepancy
Question 2- A New Yorker travels to New limey to buy a $100 telephone answering machine The New Jersey company that sells the machine then &pouts the $100 check in its account at a New York bank How would these transactions show up in the balance of payment: account: of New York and New Jersey? What if the New Yorker pays cash for the machine?
Question 3- The nation of Pecunia had a current account deficit of $1 billion and a nonreserve financial account surplus of $500 million in 2008.
a. What was the balance of payments of Pecunia in that year? What happened to the country's net foreign assets?
b. Assume that foreign central banks neither buy nor sell Pecunia assets. How the Penman central banks foreign did resent change in 2008? How would this official Intervention show up in the balance of payments accounts of Pecunia ?
c. How would your answer to (b) change if you learned that foreign central bank: had purchased $600 million of Pecunian asset in 2008? How would these official purchases enter foreign balance of payments accounts?
d. Draw up the Pecunian balance of payments accounts for 200$ under the assumption that the event described in (c) occurred in that year.
Question 4: Required for graduate students and a bonus question for undergraduate students
Graphically, show how intertemporal trade can be welfare increasing. Draw two graphs, one for the current account surplus country and the other for the deficit country.