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Principles of Macroeconomics (Mind...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165912

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Section
BuyFindarrow_forward

Principles of Macroeconomics (Mind...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165912
Chapter 18, Problem 2QCMC
Textbook Problem
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In an open economy, national saving equals domestic investment

a. plus the net outflow of capital abroad.

b. minus the net exports of goods and services.

c. plus the government’s budget deficit.

d. minus foreign portfolio investment.

To determine
Exchange rate between Paris and New York.

Explanation of Solution

Option (a):

Saving is equal to investment. In other words, it is equal to domestic investment and the investment made in the foreign country. Thus, option “a” is correct.

Option (b):

Decreasing the value of net export from the investment made in the foreign country does not give national saving. Thus,  option “b” is incorrect...

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