ECON 104 Homework 7 Answer (Penn State University)

1. Explain, in five sentences or less, exactly why the trade deficit in the US increased from 1995 to 2000. There are two specific reasons. Make sure you explain clearly (the intuition) why each reason would add to our trade deficit.

2. Suppose that you received your college degree from Penn State and nailed a great job over in Europe in the summer of 2001. Given that your family remains in the US, you make sure that you visit the family every November by traveling from Europe to the US. We are going to compare the cost of this vacation, in terms of euros, during two different periods: November 2002 and November 2012. We assume that the cost of the trip, in terms of $ US, remains the same at $1,000 in both periods. Using the data below, we will compare the euro cost of the trip in November 2002 vs. the euro cost of the trip in November 2012.