Exam 5: Saving and Investment in the Open Economy

Due to a change in the regulatory structure of a small open economy,the desired capital stock becomes higher for both private investment and government investment.Increased government investment spending is financed by borrowing,not by higher taxes.If both desired investment and government spending rise at the same time,will there be "twin deficits"?

If there's an increase in the future marginal product of capital in a large open economy,it causes the current account to ________ and saving to ________.

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

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?

Net exports of goods are known as

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 French merchandise trade balance ________ ,and the French capital and financial account balance ________.

Total spending by domestic residents,businesses,and governments is called

Consider a small open economy that is in equilibrium with a current account surplus. (a)Draw a diagram showing this situation. (b)Now suppose that future income increases.Show what happens in your diagram.What happens to the world real-interest rate and the equilibrium quantities of saving,investment,and the current-account balance? (c)Repeat parts (a)and (b)for the case of a large open economy,showing a situation in which the home country initially has a current account surplus.Draw a diagram and describe how the rise in future income in the home country affects all four variables (the world real interest rate and the equilibrium quantities of saving,investment,and the current-account balance)in both countries.

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

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Absorption is equal to

A large open economy has desired national saving of S^d = 1200 + 1000r^w,and desired national investment of I^d = 1000 - 500r^w.The foreign economy has desired national saving of = 1300 + 1000r^w,and desired national investment of = 1800 - 500 r^w.The equilibrium world real interest rate equals

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

Consider a small open economy in equilibrium with a current account deficit. (a)Draw a diagram showing this situation. (b)What happens to national saving,investment,and the current account balance in equilibrium if government expenditures rise temporarily? Show this result in your diagram.

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

A large open economy has desired national saving of S^d = 1200 + 1000r^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.

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Then desired investment equals

If France has a trade deficit,then

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

A country has a current account surplus if