UNIVERSITY OF TECHNOLOGY, JAMAICA

SCHOOL OF BUSINESS ADMINISTRATION

INTRODUCTION TO MACROECONOMICS

TUTORIAL SHEET #9

1. Distinguish between Balance of Payments and Balance of Trade.

2. What are the three categories of transactions in the Balance of Payments?

3. What types of transactions count as debits in the Balance of Payments? What types of transactions count as credits? Give examples.

4. The table below represents the demand and supply schedules for cement in Canada and United States. (Assume these are only 2 countries trading in cement).

Price per 50 kg bag of cement (in US$)	Quantity demanded in Canada ('000 bags)	Quantity supplied in Canada ('000 bags)	Quantity demanded in United States ('000 bags)	Quantity supplied in United States ('000 bags)
80	200	20	200	50
160	170	40	170	100
240	140	60	140	140
320	120	80	120	160
400	100	100	100	180
480	80	120	80	200
560	60	140	60	220
640	40	160	40	240

1. If there is no trade between these two countries, what are the equilibrium price and the equilibrium quantity in Canada?

1. If there is no trade between these countries, what are the equilibrium price and the equilibrium quantity in the United States?

1. If Canada and the United States trade with each other, what will be the equilibrium price in the world for cement?

1. If Canada and the United States trade with each other, which country will export cement and how much?

5. A nation's foreign transactions are as follows:

TRANSACTIONS	AMOUNT $
Merchandize exports	500
Service exports	75
Net Unilateral transfers	10
Domestic assets abroad (capital outflows)	-200
Foreign assets at home (capital inflows)	300
Changes in official reserves	-35
Merchandize imports	600
Service imports	50

Refer to the above table to answer the following:

a) What is this nation's balance of trade?

b) Calculate the current account balance.

c) Calculate the capital account balance.

6. The following table shows coffee and tea output per day:

Country/Product	Coffee	Tea
Jamaica	10	5
USA	50	20

1. Which country has the absolute advantage in producing tea?
2. Which Country has the absolute advantage in producing coffee?
3. Which Country has the comparative advantage in producing Coffee?
4. Which Country has the comparative advantage in producing Tea?

7. Explain the following economics terms:

1. Absolute advantage
2. Comparative Advantage
3. Appreciation
4. Depreciation
5. Purchasing Power Parity (PPP)
6. Tariff
7. Quota