Exam 5: Saving and Investment in the Open Economy

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

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

What determines the interest rate in a small open economy?

A capital and financial account surplus necessarily implies

Consider a small open economy with desired national saving of Sd = 1000 + 1000rw and desired investment of Id = 1000 - 500rw. Calculate national saving,investment,and the current account balance in equilibrium when the real world interest rate is (a)rw = 0.025. (b)rw = 0.05. (c)rw = 0.0.

If there are no net factor payments from abroad and no unilateral transfers,net exports of $10 billion is the same as

A large open economy has desired national saving of Sd = 1200 + 1000 ,and desired national investment of Id = 1000 - 500rw.The foreign economy has desired national saving of = 1000 + 1000rw,and desired national investment of = 1800 - 500rw.Calculate the equilibrium values of rw,CA,CAFor,S,I,SFor,and IFor.

Suppose a wealthy Canadian donates $10 million to charities in Mexico.Mexican net exports ________ and the current account balance ________.

How did the United States become a net debtor in the 1980s? Is our foreign debt a significant problem? Explain.

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

A large open economy has desired national saving of Sd = 1200 + 1000rw,and desired national investment of Id = 1000 - 500rw.The foreign economy has desired national saving of = 1300 + 1000rw,and desired national investment of = 1800 - 500rw.The equilibrium world real interest rate equals

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

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.

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

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 government of a large open economy reduces its spending,so that national saving increases.The result is

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 deficit.The imposition of the capital controls will cause

Consider a small open economy in equilibrium with a zero current account balance.What happens to national saving,investment,and the current account balance in equilibrium if (a)future income rises? (b)business taxes rise? (c)government expenditures decline temporarily? (d)the future marginal product of capital rises?

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