Solve the following problems.
3. The balance of payments of a nation is an accounting statement of the international economic transactions, over some period of time (usually a year), of the residents (individuals, business firms, government units) of the country. Entries into the balance of payments are either credits (exports) or debits (imports). (a) In terms of the balance of payments, what does it mean to say that a country is experiencing a "capital outflow?" Specifically, what is "moving" between countries when a country experiences a capital outflow? What is being credited and what is being debited? Carefully explain. (b) Explain what is meant by the current account, the capital account, and the official settlements account. In what sense does the balance of payments always balance? In what sense does a deficit in the "basic balance" present a problem for a country that operates under a system of fixed exchange rates (as under a gold standard, for example)? Under what conditions would a "basic balance" deficit (sometimes referred to as a "balance of payments" deficit) not present a problem? Carefully explain.We saw in class that since we are only interested in the ordering of bundles, a positive monotonic transformation (one that does not change the order) of a utility function also represents the same preferences. Mathematically, a positive monotonic transformation maintains the marginal rate of substitution (MRS) of the original utility at any point (X, Y). Prove that the following utility functions represent the same preferences by showing that the MRS of (a), (b) and (c) is exactly the same. (a) U(Qx . Qr) = Q30,-" (b) U(Qx. Qv) = ain(Qx) + (1 - a)In(Qy) (c) U(Qx. Qr) = QxQ- Econ, part a, b and cSpring 20lo, Towson University n For the demand and supply curve P- 10l- 30 ap - 3040, the per demand at the equilibrium point in: A) me - 2/0 m) 60 - 5/3 0) 60 - 3/2 D) 60 - 2/3 7. A consumer faced with the utility function U - 2X 4 373 consumes 10 units of and 5 units of good Y. What is his marginal utility of good X at this consumption A) NOY =2 B) MUY = 10- C) MUY = 3 D) MUY = 5 8. The demand function for basketball tickets is Q = 45000 - 509P and perfectly inelastic @ = 30000. The market clearing price is therefore: 4) 30 3) 35 45 50 For the utility function U = 5X + 2Y, the marginal rate of substit IRS = X/Y (RS = Y/X RS = 5X/2Y RS = 5/2 the demand and supply curves P = 100 - 3Q and P eiling of $25 creates: lus of 20 units he of 25 units