In The Following Example Each Person Is An Island We Have James And Kate Who Engage 1189696

In the following example each person is an island. We have Jamesand Kate who engage in international trade with each other. Jamesis lactose intolerant and only produces cheese. Kate is caffeineintolerant and only produces coffee. Thus, both “countries”export all their production to the other. This month James produced17 pounds of cheese and Kate 13 pounds of coffee. For simplicity,let’s assume that they share a common currency (the US dollar) andthat the price of a pound of coffee is $1, the same as a pound ofcheese.

(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 internationalsavings?

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 amerchandise transaction

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