ECON 345 Tutorial 1. Logistics: My name: Kevin Chen Oce hours (held in WMC 3621):

Transcription

1 ECON 345 Tutorial 1 Logistics: My name: Kevin Chen haiyunc@sfu.ca Oce hours (held in WMC 3621): Thursdays 2:30 3:20 Fridays 10:30 11:20 or by appointment Webpage (for tutorial slides): My sections: Sect. Time Location D105 Thursday 12:30-1:20 WMC 2268 D106 Thursday 1:30-2:20 WMC 2268 D108 Friday 8:30-9:20 WMC 2268 D109 Friday 9:30-10:20 WMC 2501 H. K. Chen (SFU) ECON 345 Tutorial 1 Jan 15 & 16, / 7

2 Ch.1 Q1 We stated in this chapter that GNP accounts avoid double counting by including only the value of nal goods and services sold on the market. Should the measure of imports used in the GNP accounts therefore be dened to include only imports of nal goods and services from abroad? What about exports? Double counting will not occur if we subtract intermediate imports, and add intermediate exports For example, consider a U.S. steel company selling to Toyota in Japan Steel sold to Toyota will not enter the U.S. national account in a more nished state, because the value of Toyota cars is counted towards Japanese GNP The value of steel is considered nal in the U.S., and intermediate in Japan. Thus the value of steel should be added to U.S. GNP (as export), and subtracted from the Japanese GNP (as import). H. K. Chen (SFU) ECON 345 Tutorial 1 Jan 15 & 16, / 7

3 Ch.1 Q3(a) (a) An American buys a share of German stock, paying by writing a check on an account with a Swiss bank. This is a case in which an American trades one foreign asset for another. The purchase of German stock is a debit in the U.S. nancial account There's a corresponding credit in the U.S. nancial account when the American pays with a check on his Swiss bank account because his claims on Switzerland fall by the amount of the check. H. K. Chen (SFU) ECON 345 Tutorial 1 Jan 15 & 16, / 7

4 Ch.1 Q3(b) (b) An American buys a share of German stock, paying the seller with a check on an American bank. There is a debit in the U.S. nancial account, as before. The corresponding credit occurs when the seller deposits the check in a German bank, which in turn lends money to a German for the purchase of either U.S. goods to be sold in Germany (credit in current account); or U.S. assets (credit in nancial account). H. K. Chen (SFU) ECON 345 Tutorial 1 Jan 15 & 16, / 7

5 Ch.1 Q3(c) (c) The Korean government carries out an ocial foreign exchange intervention in which it uses dollars held in an American bank to buy Korean currency from its citizens. This is a sales of a U.S. asset, thus representing a debit in the U.S. nancial account. The Korean citizens who sell the Korean currency in exchange for dollars can use the dollars to buy American goods (credit in current account) or assets (credit in nancial account). H. K. Chen (SFU) ECON 345 Tutorial 1 Jan 15 & 16, / 7

6 Ch.1 Q3(d) (d) A tourist from Detroit buys a meal at an expensive restaurant in Lyons, France, paying with a traveler's check. Suppose the company issuing the traveler's check uses a checking account in France to make payments. When this company makes payment to the restaurant, its payment represents a debit in U.S. current account. The company must sell assets to make this payment. This reduction in French assets owned by the company represents a credit in the U.S. nancial account. H. K. Chen (SFU) ECON 345 Tutorial 1 Jan 15 & 16, / 7

7 Ch.1 Q9 Suppose the U.S. net foreign debt is 25 percent of U.S. GDP and foreign assets and liabilities pay an interest rate of 5 percent per year. What would be the drain on U.S. GDP (as a percentage) from paying interest on the net foreign debt? Do you think this is a large number? What if the net foreign debt were 100 percent of GDP? At what point do you think a country's government should become worried about the size of its foreign debt? The net payments on net foreign debt is 5% Debt = 5%(25%) GDP = 1.25% GDP. This is not too much of a burden. If net debt is 100% of GDP, then net payments would be 5% of GDP, which is a substantial drain on the economy. If net payments as a percentage of GDP exceeds the economic growth rate, then the debt would be unsustainable. H. K. Chen (SFU) ECON 345 Tutorial 1 Jan 15 & 16, / 7