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Macroecon Trade Balance Q?


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Old 07-01-2009, 08:50 AM
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Default Macroecon Trade Balance Q?

A 14-year-old girl living in Victoria, BC, purchases a new GameCube game system at Toys "R" Us for $150. The game is manufactured by the Nintendo Co. in Tokyo. Toys "R" Us pays Nintendo $100 for the game system. The other $50 covers the cost of workers, rent, and profit for Toys "R" Us. Nintendo exchanges the $100 at the First National Bank of Tokyo for 8,000 yen. The First National Bank of Tokyo loans the $100 to the Honda Motor Co., which uses it (and a lot of additional money) to expand its automobile manufacturing facility in Alliston, Ontario. Assume that Canadian trade with Japan was in balance prior to the above transactions. How do the transactions affect the balance of trade? A. They cause a trade surplus in Canada. B. They cause an increase in net exports in Canada. C. They have no effect on the trade balance in Canada. D. They cause a trade deficit in Canada.I think the answer is D, but I'm not completely sure. Any help would be greatly appreciated.
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Old 07-01-2009, 08:50 AM
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Default Macroecon Trade Balance Q?

D. They cause a trade deficit in Canada.Purchase of Game Cube means increase of imports, thus trade balance moves toward deficit.
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