Exam 5: Saving and Investment in the Open Economy

Suppose the government of a large open economy announces a major expansion of government spending to dig a tunnel to the earth's core,to be financed entirely by borrowing.What effect does this have on the world real interest rate,national saving,investment,and the current account balance in equilibrium?

Justin spends his holidays in Mexico,where he spends $2500.This will

If there is an increase in taxes on business firms in a small open economy,it causes the current account to ________ and saving ________.

Suppose GDP is $20 billion,desired consumption $11 billion,desired investment $1 billion,and government purchases of goods and services $4 billion.What is the desired absorption in this economy?

A small open economy is an economy that

Explain why the current account balance and the capital account balance of an economy must sum to zero.

Canada's balance of payment accounts

Show where each of the following transactions belongs on the Canadian balance of payments table,using an exchange rate of 100 Japanese yen per Canadian dollar. a.A Japanese firm spends 5 billion yen to buy personal computers from IBM (a Canadian firm). b.A wealthy Japanese businessman gives $100 thousand to the San Diego Zoo. c.A Canadian firm buys 1 million Sony Walkmans at 6000 yen each (Sony is a Japanese firm). d.A Japanese investment banking firm buys 500 million dollars' worth of newly issued Canadian government Treasury bills. e.Canadian steel firms send 2000 executives to Japan to take courses in the Japanese method of steel production and Japanese management techniques,paying 2 million yen per executive. f.Repeat parts a.- e.for the balance of payments table of Japan.

The difference between the current account balance and net exports is

The government of a small open economy announces a tax cut of $100 this year,combined with a tax increase of $110 next year,when the interest rate is 10%.What are the effects of this change on the world real interest rate,national saving,investment,and the current account balance in equilibrium when a.Ricardian equivalence holds? b.Ricardian equivalence does NOT hold?

If a country's merchandise exports exceed its merchandise imports,

When there are two large open economies,the world real interest rate will be such that

In goods market equilibrium in an open economy,

Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and desired investment is $6 billion.Desired savings is equal to

Sweetland economy's GDP is $2000 billion,desired consumption spending $1200 billion,desired investment spending $500 billion,and government purchases $400 billion.The Sweetland economy's absorption is

Absorption refers to

You have just read in the newspaper that a hurricane has destroyed Guatemala's coffee crop for this year.Guatemala is a small open economy.Based on this information alone,you would expect that

If France has a trade deficit,then

If the Ricardian equivalence is true,a tax cut will

In goods market equilibrium in an open economy,