Suppose a country's net exports equal -17.7 billion. Which of the ...

[Evvie72]

Suppose a country's net exports equal -17.7 billion. Which of the following will happen if the volume of imports increases by 7 billion without any change in the volume of exports?
 
  A) The country's net exports will stand at zero.
  B) The country's net exports will become positive.
  C) The country's net exports will stand at -10.7 billion.
  D) The country's net exports will stand at -24.7 billion.

Question 2

Suppose that you lend 5,000 to a friend who pays you back 5,400 the next year. Suppose that prices that year rose by six percent and the real rate of return in the stock market was five percent.
 
  Your friend says that he or she was being more than fair by giving you more than the rate of inflation as a return. What do you think?

[Toya9913]

Answer to Question 1

D

Answer to Question 2

The opportunity cost of that money was not just the six percent inflation, but also the real rate of return that would have been enjoyed had the money been put in the stock market. For you to have been indifferent between loaning your money versus keeping it, your friend should have reimbursed you by 5,550, or an 11 return. This is another example of considering all the costs, both the loss in purchasing power of the money due to inflation and the implicit cost of the return that could have been earned if the money was invested in the stock market.