If a country has a persistently negative current account, this implies that it is “borrowing” internationally. Explain why and what this means with respect to net capital flows into the country and with respect to the relationship between Saving and Investment in the country.
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If a country has a persistently negative current account, this implies that it is “borrowing” internationally. Explain why and what this means with respect to net capital flows into the country and with respect to the relationship between Saving and Investment in the country.
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- Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of 100 billion, total domestic savings of 1,500 billion, and total domestic physical capital investment of 1,600 billion. According to the national saving and Investment Identity, what will be the current account balance? What will be the current account balance if Investment rises by 50 billion, while the budget deficit and national savings remain the same?Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing (Balanced trade/ a trade deficit/ a trade surplus) Now, suppose the government is experiencing a budget deficit. This means that ( National saving will increase/ national saving will decrease/ Domestic investment will increase / domestic investment will decrease) which leads to ( an increase in the supply of / a decrease in the supply of / an increase in the demand for/ a decrease in the demand for) loanable funds. After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign-currency exchange market. Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to show the supply curve after the budget deficit. Summarize the…Suppose that in Tunisia, a small open economy, savings initially exceeds investment. Due to events in the European economy, there is a decline in the world real interest rate. Using a supply and demand diagram, explain what happens in the savings and investment market in Tunisia. Be sure to show in the graph and explain what happens to net exports and net capital outflows. Assume initially that investment exceeds savings in Tunisia.
- You have the following annual figures for the New Zealand economy. Investment expenditure $42.5 billion Government savings -$1.7 billion Many politicians and commentators would like to see continued increases in investment and current account surpluses rather than deficits. If these events are to occur, what else must be happening in the economy? 1. The Government must raise the retirement age. 2. Government spending must fall 3. National savings (private and government) must rise 4. New Zealand must restrict foreign ownership of land and other assetsLow interest rates means low inflation which means depreciated currency. This stimulates businessmen to invest abroad as interest rates are low. How can they invest abroad if the currency is depreciated? Wouldn't that be illogical and unfeasible? (According to Mankiw's textbook)Lower Interest rates encourage additional investment spending, which gives the economy a boost in times of slow economic growth. (Investopedia) Is this talking about investment spending abroad or investment spending in general? If Investment abroad increases how can that boost the economy? Aren't those statements contradictory?Recently, Turkey has experienced high inflation and high interest rates. IN spite of that its currency depreciated at historical levels. Is this because of other reasons than high inflation and high interest rates? Do we normally assume "ceteris paribus" when talking about this correlation? Even though its currency depreciated, there were investments made in Turkey. Why?Economics Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 60 30 -10 6 55 40 -5 5 50 50 0 4 45 60 5 3 40 70 10 2 35 80 15 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market.
- Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 60 25 -10 6 55 30 -5 5 50 35 0 4 45 40 5 3 40 45 10 2 35 50 15 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. On the following graph, plot the relationship between the real…Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 45 25 -10 6 40 30 -5 5 35 35 0 4 30 40 5 3 25 45 10 2 20 50 15 3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National…Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 50 25 -15 6 45 35 -10 5 40 45 -5 4 35 55 0 3 30 65 5 2 25 75 10 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable FundsDemandSupplyEquilibrium0204060801001086420REAL INTEREST RATEQUANTITY OF LOANABLE FUNDS…
- Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 40 25 -15 6 35 30 -10 5 30 35 -5 4 25 40 0 3 20 45 5 2 15 50 10 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market.Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the dollar. Assume that the economy is currently experiencing a balanced government budget. NOTE: follow RED ARROWS for the order of the questions (IT IS PART OF THE SAME QUESTION!!!!!) NOTE: HERE ARE THE OPTIONS FOR THE BLANKS: Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing _____ (a trade deficit OR balanced trade OR a trade surplus) Now, suppose the government is experiencing a budget deficit. This means that ______ (national saving will increase OR national saving will decrease OR domestic investment will increase OR domestic investment will decrease), which leads to ______ (an increase in the supply of OR…Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing___________ .Now, suppose the government is experiencing a budget deficit. This means that _________, which leads to ___________loanable funds.After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign-currency exchange market.