Problem Set #1 True. False, Uncertain. Explain your answers: (responses should be 2 lines max each question) 1. If national saving exceeds investment, there will be a current account surplus. 2. it is impossible for each nation to have a balance of payment surplus 3. A country with current account decit must be suffering from poor economic management. 4. If there is a crisis in Argentina, and exports of US goods to Argentina fall, the cuI'rent account of the US will worsen. Short Answers 1. 2. 3. Discuss the effects of government deficits on the current account. (5 lines) How is the balance of payments linked to national saving and investment? Show how each of the following would affect the Canadian balance of payments. include a description of the debit and credit items, and in each case-say which specific account is affected, e.g. imports of goods and services (lM), exports of home assets (EX H4 , etc. (a) The Canadian government sends $2,000 worth of food aid to Africa. (1 line) (b) A Chinese owner of TD Bank shares receives $10,000 in dividend payments, which are paid into a CIBC Bank. Short Answers/ Calculations 1. Suppose at time t=1, government purchases =0, Taxes =0, that GNP1= 1000, that consumption C1=700 and investment I1 = 500 and that the country's foreign debt D1 =0 3. derive the value of net exports NX1 (X_M), and national savings (show all your work) b. What is the approximate value of the nancial account + the capital account? Following from the scenario above, assume that the current account decit are nanced by borrowing abroad at 10% interest rate. Suppose at time t=2, the government purchases =0, GNP2 =980, C2 =7OO and I2 = 500. c. Based on GNP2, derive the value of, National Savings 52, net exports NX2_and current account CA2 and debt D2