4) (5 points total ) Consider the following transaction : A German bank's subsidiary in New York purchases $500 worth of US made printer paper , paying out of its USD account at Chase Bank . a) How would this enter the US balance of payments accounts (remember there are always two entries .) b) If 1 USD = 0.8 Euros at the time of the transaction , how would the transaction enter German balance of payments accounts ? 5) (26 points total ) Hecksher -Ohlin Model Thailand and Malaysia each make hard -drives and hair dryers . The two countries have identical preferences and technologies . Hair - dryer manufacturing uses labor intensively , while hard -drive manufacturing uses capital intensively . Malaysia is relatively capital abundant a) Draw a carefully labeled diagram showing possible PPFs for the two countries . In one sentence explain why they have the shapes you have drawn b) Add an indifference curve to show what the two countries will produce and consume in autarky . Explain in words why at the equilibrium the indifference curve is tangent to the PPF . c) Now illustrate on your diagram the equilibrium with free trade between the two countries . Compare relative prices of the hard -drives and hair dryers in the two countries before and after the opening of trade d) What effect will opening trade have on the wages in Thailand ? Explain your answer and provide intuition. 5) (26 points total ) Trade creation and diversion Consider a country that is a small open economy and that imports copper . Currently the country imposes a 100 % tariff on all copper imports . With the tariff , the country could import copper at $100 from Indonesia , or for $120 from Chile a ) Illustrate equilibrium in the domestic copper er market using a supply and demand diagram . Show copper imports . Where do the imports come from ? b) Now suppose the government enters a free trade agreement with Chile , but not with Indonesia . Show the new equilibrium . Make sure to indicate the quantity of imports . Where do the imports come from ? c) Using the supply and demand diagram (or diagrams ) illustrate the change in consumer surplus , the change in producer surplus and the change in government revenue associated with entering the new free trade agreement d) On net , is the importing country better or worse off (in the copper market ) after entering the free trade agreement e) Suppose the costs were reversed , so that the Chilean price was initially $100 and the Indonesian $120 . Would that change your conclusion regarding the welfare effect of the free trade area ? Explain briefly