Please answer all of the sections of following four questions. Please provide explanations for your answers, including any calculations you have carried out. The problem set is due on April 4th (before class). Note that this problem set is to be answered individually, although small groups can work on it together. The answers must be submitted as a hard copy. Please provide comprehensive answers, showing where your results come from and supporting your answers with data and/or any references to academic studies.
- The following table shows the National Income and Product Account of the United States and the Consolidated Government Account one decade ago, in 2007.
- U.S. National Income Account and Consolidated Government Account, 2007
(In billions of dollars)
Summary National Income and Product Accounts
Gross National Product (GNP) 13,937
Private Consumption 9,734
Private Investment 2,125
Government Spending 2,689
Govt. consumption 2,221
Govt. investment 468
Current Account Balance (excludes unilateral transfers) -611
Government Consolidated Budget
Government Revenues 4,213
Government Outlays (includes govt. spending plus 4,633
transfer payments and other expenditures
Source: U.S. Department of Commerce.
(A) How much was U.S. absorption in 2007? As a proportion of GNP, was absorption in 2007 greater or lower than in 2016 (using the data presented in class)? Please explain your calculations.
(B) As a fraction of GNP, how does the current account balance (excluding unilateral transfers) in 2007 compare with that in 2016 (as presented in class)? What are the economic implications of this change?
(C) How much, as a fraction of GNP, was the budget balance in 2007? Did the budget balance deteriorate or improve between 2007 and 2016 (using the data presented in class), as a fraction of GNP? By how much? Explain.
(D) Break down the current account balance (as a fraction of GNP) into its national savings and investment components (as a fraction of GNP). What were the changes between 2007 and 2016 (as presented in class)? What accounts for the changes in the current account balance: changes in savings or changes in investment or both? Explain.
2. Shinzo Abe is the current Prime Minister of Japan. He has advocated a number of significant economic reforms since he became Prime Minister in 2012. One of these reforms involves the use of expansionary monetary policy, which the central bank of Japan has actively followed. The U.S. Treasury, however, has criticized so-called Abenomics, arguing that its monetary policy constitutes a “beggar-thy-neighbor” policy and that it unfairly discriminates economically against the United States. Do you agree or disagree with the U.S. Department of Treasury and why?
- 3. Some economists have recently argued that currency devaluations or depreciations have lost their ability to improve the current account balance or trade balance of the industrialized economies. The magazine The Economist, for example, observes that “devaluations do not seem to have provided quite the same boost [to exports] recently.” What is the evidence available on the effects of currency depreciation on the current account balance or the trade balance? Is the Economist correct? Please explain.
- 4. Due to the discoveries of vast deposits of copper, coal and gold, the country of Mongolia in central Asia will be flooded with natural resource-related revenues for many years. According to a New York Times article (July 2012), “The surging mining trade has made Mongolia the world’s fastest growing economy…the country [is] on the brink of prosperity.”
- But some economists have questioned whether the exploitation of natural resources will lead to long-run economic growth. Why would the exploitation of natural resources and the export of commodities such as oil and minerals fail to generate substantial economic progress?
- What is the global experience with the exploitation of natural resources? Have increased oil exports, for example, resulted in increased economic growth? What is the evidence on this issue?