Worksheet #3: Trade #1. In the equation Y = C + I + G + NX, are imports part of C, I, and G? your answer and give some examples if possible. Explain #2. Often we write NX as net exports, but actually this is the balance on current account. Explain the difference. #3. Suppose that NX rises by 100. What will be the short run and long run effect on equilibrium Y? Be general in your answer. #4. A trade surplus is always better than a trade deficit. Do you agree or disagree? Explain your answer. #5. How is it possible for the NT$ to rise and yet have an expanding real Taiwanese trade surplus? Be sure to consider all possible answers here. #6. What are the benefits of free trade? What are the costs? Are the costs always smaller than the benefits. #7. Most people are interested in knowing what will happen to the exchange rate. How can you help them understand the future? #8. Why has monopolistic competition become important in international trade? #9. Countries relatively rich in labor will export labor-intensive goods, while countries relatively rich in capital will export capital-intensive goods. Is this always true for all countries and all products? Explain. #10. A trade surplus always causes an increase in the money supply. Do you agree or not? Explain your answer.