Plot graphs and show calculation where necessary.

Question 1: Short answer questions

1.Many think that the size of a trade deficit is due to a lack of competitiveness of domestic sectors, such as autos. Explain why this is not true.

2.If you observed a country with a rapidly growing trade surplus over a period of a year or so, would you be more likely to believe that the economy of that country was in a period of recession or of rapid growth? Explain.

3.From time to time, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?