Exam 5: Saving and Investment in the Open Economy

If the United States sells computers to Russia,and uses the proceeds to buy shares of stock in Russian companies,the U.S.trade balance ________ and the U.S.financial account balance ________.

A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents.The country is currently running a financial account surplus.The imposition of the capital controls will cause

Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and net exports are $4 billion.Then desired investment equals

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?

A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents.The country is currently running a financial account deficit.The imposition of the capital controls will cause

A country has a current account surplus if

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

Consider a large open economy that has a zero current account balance.What are the effects on the world real interest rate,national saving,investment,and the current account balance in equilibrium if (a)future income rises? (b)business taxes decline? (c)government purchases decline? (d)the future marginal product of capital declines?

A large open economy has desired national saving of S^d = 1200 + 1000 r^w,and desired national investment of I^d = 1000 - 500r^w.The foreign economy has desired national saving of = 1000 + 1000r^w,and desired national investment of = 1800 - 500r^w.Calculate the equilibrium values of r^w,CA,CA_For,S,I,S_For,and I_For.

When there are two large open economies,if desired international borrowing by the domestic country exceeds desired international lending by the foreign country,then

Consider a small open economy in equilibrium.What happens to the real interest rate,national saving,investment,and the current account balance in equilibrium in each of the following situations (each taken separately).Explain which curve shifts and why,and show a diagram explaining your results.(You may assume that none of the shocks is large enough to significantly affect labor supply or labor demand significantly.) (a)wealth declines (b)business taxes decline (c)income rises temporarily

Assuming no change in the effective tax rate on capital,a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease in the budget deficit

In goods market equilibrium in an open economy,

If business taxes rise in a large open economy,it causes the current account to ________ and saving to ________.

If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches,the Italian current account balance ________,and the Italian financial account balance ________.

A friend claims that the United States is a net international debtor.The best way of testing this claim is to see whether

In a saving-investment diagram for a small open economy

Suppose output is $35 billion,government purchases are $10 billion,consumption is $15 billion,and net exports are $4 billion.Assume net factor payments equal 0. (a)Calculate the equilibrium amount of investment.Show your work. (b)Calculate the equilibrium amount of absorption.Show your work. (c)Calculate the equilibrium amount of the financial account balance.Show your work.

A small open economy increases its desired saving.This causes the world real interest rate to ________ and the country's current account balance to ________.

A negative value for the U.S.official reserve assets line in the balance of payments accounts means that