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Suppose that Americans decide to increase their saving. a. If the elasticity of U.S. net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on U.S. domestic investment? b. If the elasticity of U.S. exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on the U.S. real exchange rate?

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Principles of Economics, 7th Editi...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165875

Solutions

Chapter
Section
BuyFindarrow_forward

Principles of Economics, 7th Editi...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165875
Chapter 32, Problem 9PA
Textbook Problem
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Suppose that Americans decide to increase their saving.

a. If the elasticity of U.S. net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on U.S. domestic investment?

b. If the elasticity of U.S. exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on the U.S. real exchange rate?

Subpart (a):

To determine
The impact of increased savings.

Explanation of Solution

Savings is the excess disposable income left after the consumption expenditure of an individual. The savings kept by the people in an economy are known as the private savings and the savings by the government is known as the public savings. The national savings is the summation of both private and the public savings of an economy.

It is given that the individuals decide to increase their savings...

Subpart (b):

To determine
The impact of increased savings.

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