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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Using the national savings and Investment identity, explain how each of the following changes (ceteris paribus) will Increase or decrease the trade balance:

a. A lower domestic savings rate

b. The government changes from running a budget surplus to running a budget deficit

C. The rate of domestic Investment surges

A

To determine

Whether a lower domestic savings rate will increase or decrease the trade balance is to be determined.

Explanation

In the financial capital market, supply of financial capital is equal to demand of financial capital. Where supply consists of savings , trade deficit (imports(M)-exports(X))which is capital inflow from outside and demand consists of investment(I) ,government spending(G) -taxes(T) as government borrow when spending is more than income

Supply of financial capital=Demand of financial capital

  

B

To determine

Whether the government is running a budget deficit will increase or decrease the trade balance is to be determined.

C

To determine

Whether the rate of domestic investment surges will increase or decrease the trade balance is to be determined.

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