What is the direction of the flow of international savings

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Reference no: EM13798263

In the following example each person is an island. We have James and Kate who engage in international trade with each other. James is lactose intolerant and only produces cheese. Kate is caffeine intolerant and only produces coffee. Thus, both \"countries\" export all their production to the other. This month James produced 17 pounds of cheese and Kate 13 pounds of coffee. For simplicity, let\'s assume that they share a common currency (the US dollar) and that the price of a pound of coffee is $1, the same as a pound of cheese.

(1) Who has a negative trade balance with the other country?

a) Kate

b) Both

c) Neither

d) James

2) What is the direction of the flow of international savings?

a) Kate is receiving a flow of James\' savings that amounts to $4.00.

b) James is receiving a flow of Kate\'s savings that amounts to $4.00.

c) Neither of them is borrowing or saving, as theirs was only a merchandise transaction

d) Kate is sending a flow of $4.00 as a loan to James.

Reference no: EM13798263

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