For each of the following transactions, explain what happens to the merchandise trade balance, current account balance, and financial account balance in both the United States and Mexico. The exchange rate is 2 Mexican pesos per U.S. dollar
(a) A Mexican firm spends 4 million pesos to buy radiology equipment from a U.S. firm. (b) A U.S. firm buys 20,000 sombreros at 20 pesos each. (c) Mexican computer firms send 200 programmers to universities in the United States, paying tuition and expenses of $3000 each. (d) A Mexican entrepreneur gives 50,000 pesos to the United Way of San Antonio, Texas. (e) Mexican investors buy $10 million worth of 30-year U.S. Treasury bonds.
(a) U.S. merchandise trade balance and current account rise $2 million, financial account declines by $2 million; Mexican merchandise trade balance and current account decline by 4 million pesos, financial account rises by 4 million pesos.
(b) U.S. merchandise trade balance and current account decline by $200,000, financial account rises by $200,000; Mexican merchandise trade balance and current account rise by 400,000 pesos, financial account declines by 400,000 pesos.
(c) U.S. merchandise trade balance is unchanged, current account balance rises by $600,000, financial account declines by $600,000; Mexican merchandise trade balance is unchanged, current account balance falls by 1.2 million pesos, financial account rises by 1.2 million pesos.
(d) U.S. merchandise trade balance is unchanged, current account balance rises by $25,000, financial account declines by $25,000; Mexican merchandise trade balance is unchanged, current account balance declines by 50,000 pesos, financial account rises by 50,000 pesos.
(e) No change in any accounts in either country.
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If the Federal Reserve sells $100 of securities through a commercial bank when the reserve requirement is 10 percent, the maximum potential change in the money supply is
A) a $1,000 increase. B) a $1,000 decrease. C) a $100 decrease. D) a $100 increase.
Which describes the economic meanings of value and price?
A) Value is exchange worth minus marginal benefit, and price is the dollars that must be paid. B) Value is the marginal benefit obtained, and price is the dollars that must be paid. C) Value refers to the gain the producer gets from the good or service, and price refers to the gain the consumer gets from the good or service. D) Value refers to the dollars that must be paid, and price refers to the cost of producing the good. E) They are the same and both mean the dollars that must be paid.