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Chapter 19: Q. 1 (page 529)

Go to the St. Louis Federal Reserve FRED database, and find data on net exports (NETEXP), transfers (A123RC1Q027SBEA), and the current account balance (NETFLIX).

a. Calculate net investment income for the most recent quarter available, and for the same quarter a year earlier.

b. Calculate the percentage change in the current account balance from the same quarter one year earlier. Which one of the three items making up the current account balance had the largest effect in percentage terms on the change of the current account? Which one had the smallest effect?

Short Answer

Expert verified

a. Investment income for most recent year is−$111.176billionand for a year earlier is −$108.975.

b. Percentage change in the current account balance is 30%

Step by step solution

01

Explanation (part a)

Net exports refer to the difference between exports and imports. The current account shows the monetary transactions of a country with the rest of the world. It includes transactions of goods and services, income, and unilateral transfers.

02

Percentage change (part b)

a.

The net change in government international reserves currentaccountcapital account

The most recent data available is for 2014 year.

The net change in government international reserves:

=−$111.156−0.020=−$111.176billion

For 2010 year

=−$108.972−0.003=−$108.975

b.

The dollar is the world's most powerful currency.

The net wealth of the United States is 30% of the total world wealth by country.

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Most popular questions from this chapter

What is the exchange rate between dollars and Swiss francs if one dollar is convertible into 1/40 ounce of gold and one Swiss franc is convertible into 1/25 ounce of gold?

For each of the following, identify in which part of the balance-of-payments account the transaction is recorded (current account, capital account, or net change in international reserves) and whether it is a receipt or a payment.

a. A British subject’s purchase of a share of Johnson & Johnson stock

b. An American citizen’s purchase of an airline ticket from Air France

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f. A loan from an American bank to Mexico

g. An American bank’s borrowing of euro dollars

Suppose that you travel to Cali (Colombia), where the exchange rate is1USDto2,900Colombian pesos. As you enter a McDonald’s restaurant, you realize you need 17,400Colombian pesos to buy a Big Mac. Assuming a Big Mac sells for $5in the United States, would you say that the Colombian peso is over- or undervalued in terms of PPP?

24. Suppose the Mexican central bank chooses to peg the peso to the U.S. dollar and commits to a fixed peso/ dollar exchange rate. Use a graph of the market for peso assets (foreign exchange) to show and explain how the peg must be maintained if a shock in the U.S. economy forces the Fed to pursue contractionary monetary policy. What does this say about the ability of central banks to address domestic economic problems while maintaining a pegged exchange rate?

“If a country wants to keep its exchange rate from changing, it must give up some control over its monetary policy.” Is this statement true, false, or uncertain? Explain your answer.
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