'7. Balance of Payments | {12) The Balance of Payments (BOP) measures all international transactions between two countries. The chart below shows different transactions between the US and China . Purchased $800 of goods from China . Chinese spent $1000 on US goods 0 Americans spent $100 in Chinese stock market . Chinese spent $300 on US services 0 Americans spent $1000 on services from China 0 Chinese purchased a $300 business in the US 0 Chinese -overnment urchased US bonds a. Assuming that both goods and services are included in the balance of trade, which country has a trade deficit, and which has a trade surplus? Explain how you got your answer. Explain why these countries can't both have a trade decit [ {5) h. Assuming that these are all the transactions between these two countries, calculate the dollar value of US bonds held by the Chinese government. Explain how you determined your answer. ( :2) c. Calculate the value of the current accounts and financial accounts for each country. Explain why one country must have a current account decit and the other will have a financial account surplus. ( f5) 8. Assume that Russia and the US are trading partners. (9) a. Draw a model showing the foreign exchange rate for the Russian ruble compared with the US dollar. ( 12) b. Draw another model showing the foreign exchange rate for the US dollar (compared to the Russian ruble). ( f2) c. Show what happens on both models - if the price level in the U.S. increases relative to the price level in Russia (8). d. Does the US dollar appreciate or depreciate? [ I1) e. Does the ruble appreciate or depreciate? I[ ) 9. Assume that Japan and the US are trading partners. (15) a. Draw a model showing the foreign exchange for the U.S. dollar (compared with the yen) ( 12). h. Draw another model showing the foreign exchange rate for the yen (compared to the U.S. dollar). { :2) c. Now assume that the US Federal Reserve institutes a policy that raises interest rates in the United States relative to interest rates in Japan. Is this a scal or monetary policy? (_f 1) d. Show what happens on both models based on this new Federal Reserve policy. ( :3) e. Has the dollar appreciated or depreciated? ( f 1) f. Has the yen appreciated or depreciated? ( f1) g. As a result of the changing value of the U.S. dollar: i. Will US exports increased or decreased? Why? ( f2) ii. Will US imports increased or decreased? Why? ll f2) iii. Will the US aggregate demand shift left or right? ( {1)