Question

Suppose you own a toy store in the United States, where there is high demand for the PlayNation Perfect, a video game console. Because of this, you spend $10,000 to increase your inventory of the gaming system, which is manufactured by Zony, a Japanese company, in Japan.
1. Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy.

Answer 1

Answer:

1. Determine the effects of this transaction on

a. Exports - There will be no effect on the export of the USA;

b. Imports - The initial amount spent on the importation of the toys and the videogame plus $10,000.00 spent on the importation  of PlayNation Perfect Video game console to increase the inventory will put the Japanese economy on a favourable BalanceBalance of Payment (BOP) because money came into the economy and left the USA economy simultaneously.

c. Net exports in the U.S. economy will be low.

Explanation:

a. Exports - There will be no effect on the export of the USA because the store did not export anything rather it imported the PlayNation Perfect video game console from a Japanese company and spent an additional $10,000.00 to increase his inventory. Simply put, money left the US economy without a complementary import to strike a balance in Balance of Payment.

b. Imports - The initial money spent in the importation of the consignment and  $10,000.00 spent to increase his inventory will put the Japanese economy on a favourable Balance of Payment (BOP) because money came into the economy and left the US economy;

c. Net exports in the U.S. economy will be low because there were importations of  goods into the economy without corresponding export to have a favourable Balance of Payment in the International Trade. It is when the Exports in USA is greater that that of the import that you have a favourable Balance of Paymet and  it  translates to improve GDP.