Finance Harm in Economic Growth - Essay Example

h) Profits of 5 million from operations is a debit item in Fredonia’s balance of payment and it is classified in the current accounti) The central bank buys 10 million in U.S treasury bills is credit entry in the balance of payment account and it is classified in the financial account.j) The government forgives 100 million loads made to Argentina is a credit entry and it is classified in the financial account.Question Twoa) Balance of trade It can be defined as the comparison between all the receipts from abroad arising from the exports and all the expenditures abroad from the import of goods (Siong & Nirvikar, 2014).

It is given by;= Exports –imports= 120,542- 108,227= 12,315b) Current accountIt shows a record of all transactions involving the exchange of produced foods and services and it is given by;Current account =balance of trade +investment receipts-investment payments=12,315+43,720-27,702=28,333 c) Switzerland became a larger international net creditor during the year because it had a trade surplus which implies that the country is able to pay for its imports and also to settle international debts.

Trade surplus also is a good indicator of the country’s success in its trading activities and therefore it makes the country desirable.Question ThreeA. The Japanese yen is undervalued and this is because the foreign currency has increased despite that it has a higher inflation rate as compared to the domestic currency.B. According to the monetary approach, the dollar price for the Mexican peso will depreciate due to the slow economic growth. This is so because a balance of payment surplus implies an increase in the exchange rate and the converse is also true (Siong & Nirvikar, 2014).C. Sticky prices are prices that are slow to change and therefore their effect on the domestic interest rates will change consistently while flexible prices cause the interest rates to fluctuate from one time to another without a consistent pattern.D. An increase in the real exchange rates causes the exports to become more expensive and imports become cheaper, therefore, countries will export less and import more and this will harm the exporters.

Question FourA. True. A j-curve explains the effect of currency devaluation on imports and exports.J-curveB. True. When the exchange rates the imports become cheaper for domestic customers and therefore the demand increases.C. False. An increase in domestic prices will cause the DD to shift to the left.D. If the domestic currency depreciates the AA curve will shift upward.E. False. The expansionary fiscal policy is aimed at closing the recessionary gap