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Consider the economy of Opulenza. In Opulenza, domestic investment was $400 milion, and there was $20 million in capital gains or domestic wealth...
Consider the economy of Opulenza. In Opulenza, domestic investment was $400 milion, and there was $20 million in capital gains or domestic wealth during 2007. Opulenzans purchased $120 million in new foreign assets during the year; foreigners purchased $160 million in Opulenzan assets. Assume the valuation effects $1 million in capital gains or external wealth.
a)Compute the change in domestic wealth for Opulenza
b)Compute the change in external wealth for Opulenza
c)Compute the change in total wealth for Opulenza
d)Compute domestic savings for opulenza
e)Compute Opulenza's current account. Is the CA in deficit or surplus?
f)Explain the intuition for the CA deficit/surplus in terms of savings in Opulenza, financial flows, and its domestic/ external wealth position
g)How would a depreciation in Opulenza's currency affect its domestic, external and total wealth? Assume that foreign assets owned by Opulenzans are denominates in foreign currency.
