EBK BRIEF PRINCIPLES OF MACROECONOMICS
7th Edition
ISBN: 9780100469884
Author: Mankiw
Publisher: YUZU
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Chapter 14, Problem 9PA
Subpart (a):
To determine
The impact of increased savings.
Subpart (b):
To determine
The impact of increased savings.
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Suppose that Americans decide to increase their saving. As a result, the real interest rate will
and U.S. net capital outflow will
If the elasticity of U.S. net capital outflow with respect to the real interest rate is very low, this increase in private saving will have a
on U.S. domestic investment.
If the elasticity of U.S. exports with respect to the real exchange rate is very high, this increase in private saving will have a
U.S. real exchange rate.
effect
effect on the
Would each of the following transactions be includedin U.S. net exports or in U.S. net capital outflow?Indicate whether it would represent an increase or adecrease in that variable.a. An American buys a Sony TV.b. An American buys a share of Sony stock.c. The Sony pension fund buys a bond from theU.S. Treasury.d. A worker at a Sony plant in Japan buys someGeorgia peaches from an American farmer.
Economic logic may tell us that a country with a higher interest rate, thus a higher rate of return, should be able to attract foreign capital and that a country with a lower interest rate, thus a lower rate of return, should experience an outflow of capital. If a country is experiencing a large net capital inflow its currency is likely to appreciate, while a country experiencing a large net capital outflow would likely see its currency depreciate (assuming a floating exchange rate). However, according to interest rate parity conditions a country with a higher interest rate would see its currency depreciate, while the currency of the lower interest rate country would appreciate. What is the main reason the outcome under interest rate parity conditions?
Question 4 options:
The assumption that countries have an identical real interest rate
The relative interest rate level is not a factor for investment decisions
Investors do not seek…
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EBK BRIEF PRINCIPLES OF MACROECONOMICS
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