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Finder File Edit View Go Window Help 100% A Sun 9:25 PM Problem set1.pdf (page 1 of 2) - Search Problem 1. Consider a country Vodka, which produces two goods: bottles of olive oil and bottles of wine. As there is a large international market for olive oil and wine, the relative price is pinned down by the global price, which is 2 bottles of olive oil per bottle of wine. Assume that there are open in- ternational capital markets, so Vodka can freely borrow from or lend to other countries at an interest rate of 10%. Suppose in 2019, Vodka produced 100 bottles of olive and 100 bottles of wine. In that year, Vodkan households wanted to consume 80 bottles of wine and 40 bottles of olive oil. Furthermore, they wanted to invest the equivalent of 10 bottles of olive oil. Government consumption was zero. Fi- nally, assume that Vodka had an existing net debt to the rest of the world equal to 100 bottles of olive oil. cs61a (a) What is the GDP of Vodka (Y), expressed in units of olive oil? What is the GNP of Vodka (Q) in units of olive oil? music26 (b) What was Vodka's current account (CA) expressed in units of olive oil? Calculate CA using each of the three definitions given in class and show that they coincide. (c) What will be Vodka's net foreign asset (NFA) position at the end of 2019? During 2019, is Vodka pcode borrowing from or lending to the rest of the world? Now suppose that in 2020, the Vodkan olive oil industry experiences a disastrous olive pandemic, which cuts production of olive oil in half (wine production is unaffected). (d) If consumption and investment are unchanged, calculate Vodka's 2020 GNP and CA balance. What 1 SEP 3 TALK 6. Finder File Edit View Go Window Help 100% A Sun 9:25 PM Problem set1.pdf (page 1 of 2) - Search Problem 1. Consider a country Vodka, which produces two goods: bottles of olive oil and bottles of wine. As there is a large international market for olive oil and wine, the relative price is pinned down by the global price, which is 2 bottles of olive oil per bottle of wine. Assume that there are open in- ternational capital markets, so Vodka can freely borrow from or lend to other countries at an interest rate of 10%. Suppose in 2019, Vodka produced 100 bottles of olive and 100 bottles of wine. In that year, Vodkan households wanted to consume 80 bottles of wine and 40 bottles of olive oil. Furthermore, they wanted to invest the equivalent of 10 bottles of olive oil. Government consumption was zero. Fi- nally, assume that Vodka had an existing net debt to the rest of the world equal to 100 bottles of olive oil. cs61a (a) What is the GDP of Vodka (Y), expressed in units of olive oil? What is the GNP of Vodka (Q) in units of olive oil? music26 (b) What was Vodka's current account (CA) expressed in units of olive oil? Calculate CA using each of the three definitions given in class and show that they coincide. (c) What will be Vodka's net foreign asset (NFA) position at the end of 2019? During 2019, is Vodka pcode borrowing from or lending to the rest of the world? Now suppose that in 2020, the Vodkan olive oil industry experiences a disastrous olive pandemic, which cuts production of olive oil in half (wine production is unaffected). (d) If consumption and investment are unchanged, calculate Vodka's 2020 GNP and CA balance. What 1 SEP 3 TALK 6.

Answer rating: 100% (QA)

1a The price of each bottle of wine is 2 bottles of olive oil in the global market in this case In 2019 the total production of wine and olive oil in Vodka are 100 bottles each for both the goods The ... View the full answer