Macroeconomics Question and Answer

1. What is the difference between foreign direct investment and portfolio investment? (13 points)2. What is the purchasing power parity exchange rate? (13 points)3. If a country’s currency is expected to appreciate in value, what is the impact of expected exchange rates on the interest rate paid on government bonds? (12 points)4. Would each of the following groups be happy or unhappy if the U.S. dollar appreciated? Explain.A. Dutch pension funds holding U.S. government bonds (2 points)B. U.S. manufacturing industries (2 points)C. Australian tourists planning a trip to the United States (2 points)D. An American firm trying to purchase property overseas (2 points)5. In 2010, a British pound cost $1.56 in U.S. dollars. In 2020, a British pound costs $1.66 in U.S. dollars.A. In 2010 was the pound weaker or stronger than the U.S. dollar? (2 points)B. Between 2010 and 2020, did the U.S. dollar appreciate or depreciate versus the pound?(2 points)C. Calculate the cost of a U.S. dollar in terms of British pounds in 2020. (2 points)6. Define the concepts of budget deficit and national debt, and explain how they differ from one another. (12 points)7. The economist Arthur Laffer pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Explain how this could be true. (12 points)8. Is it possible for a nation to run budget deficits and still have its debt/GDP ratio fall? Is it possible for a nation to run budget surpluses and still have its debt/GDP ratio fall? Explain. (12 points)9. Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below.A. A recession (2 points)B. A stock market collapse that hurts consumers and business confidence (2 points)C. Extremely rapid growth of exports (2 points)D. Rising inflation (2 points)E. The economy is at its natural rate of unemployment/potential GDP/LRAS. The government decides to enact a massive increase of expenditure. (2 points)F. A rise in oil prices (2 points) This work, “Written Assignment 4 Questions,” is a derivative of Principles of Macroeconomics 2e by Steven A. Greenlaw and David Shapiro, OpenStax, used under CC BY 4.0. “Written Assignment 4 Questions” is licensed under CC BY 4.0 by Thomas Edison State University.

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