Determine what happens to the us trade balance

Reference no: EM132127633

Question: Assume that US imports have an income elasticity of 1.3 and a price elasticity of -0.5, and US exports have an income elasticity of 1.2 and a price elasticity of -0.7. They also have a ‘‘repercussion elasticity'' of 0.5, reflecting changes in GDP the previous year. To simplify matters, assume that both exports and imports are 10% of GDP. Determine what happens to the US trade balance this year and next when:

(A) An easier monetary policy boosts the growth rate by 1%.

(B) Export subsidies equal to 2% of total exports are granted.

(D) US costs of production rise 2%, hence boosting export prices by that amount.

(E) An inflow of foreign saving boosts the value of the dollar by 8%.

Reference no: EM132127633

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