1. What is recorded in the US current account? In its capital account? In its official settlements account?
2. If its official settlements account equals zero, what will a country's capital account equal if it has a $350 billion current account deficit?
3. The table below has balance of payment data for the United States (see the chart with US investment abroad 400 billion...).

3a. What is the capital account balance?

3b. What is the official settlements balance?

3c. what is the current account balance?

3d. What is the value of imports of goods and services?

4.What is a net borrower? A debtor nation? Is it possible for a nation to be net borrower and yet not be a debtor nation?

5.The table above has data for the United States (see table with Saving 1,600 billion).

5a. What is the private sector balance?

5b. What is the government sector balance?

5c. What is net export?

6.If the exchange rate rises from 0.90 euros per dollar to 1.00 euros per dollar, has the dollar appreciated or depreciated? Has the euro appreciated or depreciated?

7.What is the relationship between the value of US exports and the quantity of US dollars demanded? Why does this relationship exist?

8.What is the relationship between the value of US imports and the quantity of US dollars supplied? Why does this relationship exist?

9.Everything else remaining the same, how will a rise in the European interest rate affect the demand for dollars, the supply of dollars, and the US exchange rate?

10.If the Fed believes the exchange rate is too low and wants to raise it, what action does the Fed undertake in the foreign exchange market? What limits the extent to which the Fed can undertake this action?

Graphing and short answer questions:

1. Figure 19.1 (see the graph 19.1) shows the foreign exchange market for US dollars.

1a. What is the equilibrium exchange rate?

1b. The US interest rate differential rises. In figure 19.1, illustrate the effect of this change. What happens to the exchange rate?

2.Figure 19.2 (see graph 19.2) shows the foreign exchange market for US dollars. Suppose people expect that the future exchange rate will be lower. In figure 19.2, illustrate the effect of this change. What happens to the exchange rate? Has the exchange rate appreciated or depreciated?

Item billions of dollars) U.S. investment abroad 400 Exports of goods and services 1.000 Net transfers Change in official reserves 10 Net interest Foreign investment in the United States 800Item billions of dollars Saving 1,600 Investment 1,900 Government expenditures 1,300 Net taxes 1,400FIGURE 19.1 Exchange rate (euros per dollar) 1.10 So 1.05 1.00 0.95 0.90 Do 0 1.I 1.2 1.3 1.4 1.5 Quantity (trillions of dollars per day)FIGURE 19.2 Exchange rate (euros per dollar) 1.10 So 1.05 1.00 0.95 0.90 Do 0 1.I 1.2 1.3 1.4 1.5 Quantity (trillions of dollars per day)