ECN-360 Module 8 Chapter 18 Problems

ECN-360 Module 8 Chapter 18 Problems 18-2, 18-4, 18-10, and 18-12

Intermediate Economics – Macro Policy in the Global Economy

Grand Canyon University

Textbook: Economics Today (17th Edition)

Complete the following:

Chapter 18, problems 18-2, 18-4, 18-10, and 18-12

Problems 18-2

A nation’s current annual rate of growth of per capita real GDP is 3.0 percent, and its annual rate, of population growth is 3.4 percent. What is the nation’s annual rate of growth of real GDP? (See page 397.) Problems 18-4 The annual rate of growth of real GDP in a developing nation is 0.3 percent. Initially, the country’s population was stable from year to year. Recently, however, a significant increase in the nation’s birthrate has raised the annual rate of population growth to 0.5 percent. (See page 397.)

a. What was the rate of growth of per capita real GDP before the increase in population growth?

b. If the rate of growth of real GDP remains unchanged, what is the new rate of growth of per capita real GDP following the increase in the birthrate?

Problems 18-10

Last year, $100 million in outstanding bank loans to a developing nation’s government were not renewed, and the developing nation’s government paid off $50 million in maturing government bonds that had been held by foreign residents. During that year, however, a new group of banks participated in a $125 million loan to help finance a major government construction project in the capital city. Domestic firms also issued $50 million in bonds and $75 million in stocks to foreign investors. All of the stocks issued gave the foreign investors more than 10 percent shares of the domestic firms. (See page 403.)

a. What was gross foreign investment in this nation last year?

b. What was net foreign investment in this nation last year?

Problems 18-12

Identify which of the following situations currently faced by the World Bank or the International Monetary Fund are examples of adverse selection and which are examples of moral hazard. (See pages 404–405.)

a. The World Bank has extended loans to the government of a developing country to finance construction of a canal with a certain future flow of earnings. Now, however, the government has decided to redirect those funds to build a casino that may or may not generate sufficient profits to allow the government to repay the loan.

b. The IMF is considering extending loans to several nations that failed to fully repay loans they received from the IMF during the past decade but now claim to be better credit risks. Now the IMF is not sure in advance which of these nations are unlikely to fully repay new loans.

c. The IMF recently extended a loan to a government directed by democratically elected officials that would permit the nation to adjust to an abrupt reduction in private flows of funds from abroad. A coup has just occurred, however, in response to newly discovered corruption within the government’s elected leadership. The new military dictator has announced tentative plans to disburse some of the funds in equal shares to all citizens