Exam 5: Saving and Investment in the Open Economy

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?

Absorption refers to

In goods market equilibrium in an open economy,

Briefly discuss the idea of "twin deficit." In your answer, include historical evidence, if any, and explain why some economists do not agree with the idea. Is Ricardian equivalence proposition consistent with the idea of twin deficit? Why?

Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon. Assuming Costa Rica is a small open economy, you would expect the government's action to

A capital account surplus necessarily implies

When a current account has a surplus of $5 billion, it means that

In goods market equilibrium in an open economy,

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 term "twin deficits" refers to a situation in which there exists

Which of the following statements is true?

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

Suppose the current account shows debits of $4.7 billion and credits of $5.3 billion. The current account balance is ________, and the capital account balance is ________.

Which of the following statement is true?

A small open economy has a current account balance of zero. A rise in the world real interest rate causes

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

The main difference between the small open economy and the large open economy is that

The difference between the current account balance and net exports is

Which of the following statements about the Canadian balance of payment is true?

When future labour income falls in a small open economy, it causes the current account to ________ and investment to ________.