Question 1

Based on the following information,calculate public saving,net foreign investment,and national income.
Private saving = $83 billion
Exports = $125 billion
Imports = $130 billion
Consumption = $200 billion
Private investment = $56 billion
Government purchases = $38 billion

Accepted Answer

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Question 2

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment.Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

Accepted Answer

The answer of Japan has a fairly high saving rate...

Question 3

The United States is called a debtor nation because

Accepted Answer

A debtor nation is a country that has a current account deficit, meaning it is importing more goods and services than it is exporting. As a result, the country must rely on foreign investment or borrowing to finance its consumption. In the case of the United States, it has a large current account deficit and is simultaneously funded by foreign investment, making it a debtor nation.

Question 4

Investment (I)in the United States may increase with either an increase in national saving or an increase in net foreign investment.

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Question 5

An increase in U.S.federal government budget deficits that raises U.S.interest rates relative to the rest of the world should

Accepted Answer

An increase in U.S. federal government budget deficits that raises U.S. interest rates relative to the rest of the world would attract foreign capital, appreciating the dollar. This makes U.S. goods more expensive abroad and foreign goods cheaper in the U.S., thus increasing imports and decreasing exports. Consequently, this would increase the current account deficit.

Question 6

Use the saving and investment equation to explain why the United States experienced large current account deficits in the late 1990s.

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Question 7

Does the saving and investment equation imply that a country's national saving must always equal its domestic investment? Explain.

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Question 8

Explain the relationship between net exports and net foreign investment.

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Question 9

An increase in net foreign investment is possible through a decrease in national saving or a decrease in domestic investment.

Accepted Answer

An increase in net foreign investment is typically associated with an increase in national saving or a decrease in domestic consumption, not a decrease in national saving or a decrease in domestic investment. Higher national saving can provide more resources for investment domestically or abroad, while a decrease in domestic investment could potentially increase net foreign investment if those savings are instead invested in foreign assets.

Question 10

In the United States,domestic investment is greater than national saving.

Accepted Answer

According to the latest data from the Bureau of Economic Analysis, in the first quarter of 2021, the domestic investment (also known as Gross Private Domestic Investment) was $4.6 trillion, while the national saving (also known as Gross National Saving) was $3.8 trillion. This means that domestic investment is currently greater than national saving in the United States.

Question 11

How would a decrease in the U.S.budget deficit affect the exchange rate in the market for dollars?

Accepted Answer

A decrease in the U.S. budget deficit can lead to lower interest rates, reducing foreign investment demand for dollars, which can decrease the exchange rate.

Question 12

What impact might an increase in the budget deficit have on interest rates and exchange rates?

Accepted Answer

An increase in the budget deficit can lead to higher interest rates as the government borrows more, increasing demand for loanable funds. This can attract foreign capital, leading to an appreciation of the exchange rate.

Question 13

How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Accepted Answer

An increase in the budget deficit can lead to higher interest rates, attracting foreign capital, which increases the demand for dollars. However, it does not directly increase the supply of dollars in the foreign exchange market.

Question 14

How might a budget deficit affect the balance of trade?

Accepted Answer

When a country has a budget deficit, it needs to borrow money from foreign investors, which increases its demand for foreign currency. This increased demand for foreign currency raises its value relative to the domestic currency, leading to an appreciation of the exchange rate. A higher exchange rate makes exports more expensive and imports cheaper, which reduces the balance of trade. Therefore, a budget deficit raises interest rates, raises exchange rates, and reduces the balance of trade.

Question 15

Saving exceeds domestic investment in Japan,which generates a financial account deficit in Japan's balance of payments.

Accepted Answer

If saving exceeds domestic investment, it means that households and businesses are not investing domestically and are instead investing abroad. This results in a financial account deficit in Japan's balance of payments, as more money is flowing out of the country than is flowing in.

Question 16

Persistent current account deficits in the United States

Accepted Answer

Persistent current account deficits in the United States can be interpreted as a vote of confidence in the strength of the U.S. economy, as they often reflect the attractiveness of the U.S. as a destination for investment, leading to more capital inflows.

Question 17

Which of the following is true about the occurrence of the twin deficits?

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Question 18

Based on the following information,calculate public saving,net foreign investment,and national income.Assume that the capital account is zero and net transfers are zero.
private saving = $145 billion
exports = $285 billion
imports = $240 billion
consumption = $600 billion
private investment = $125 billion
government purchases = $75 billion

Accepted Answer

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Question 19

If you know that a country's net foreign investment is positive,what does that tell you about the relationship between the country's national saving and private investment? (Assume that the capital account is zero and net transfers are zero.)

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Question 20

What two measures of macroeconomic activity are often referred to as the "twin deficits"?

Accepted Answer

The two measures of macroeconomic activity that are often referred to as the "twin deficits" are the budget deficit and the current account deficit. The budget deficit is the difference between government spending and revenue, while the current account deficit is the difference between a country's total imports and total exports. Both deficits reflect a country's economic imbalance and can have negative consequences for the economy if they are not managed properly.

Quiz 18: Macroeconomics in an Open Economy

Based on the following information,calculate public saving,net foreign investment,and national income. Private saving = $83 billion Exports = $125 billion Imports = $130 billion Consumption = $200 billion Private investment = $56 billion Government purchases = $38 billion

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment.Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

The United States is called a debtor nation because

Investment (I)in the United States may increase with either an increase in national saving or an increase in net foreign investment.

An increase in U.S.federal government budget deficits that raises U.S.interest rates relative to the rest of the world should

Use the saving and investment equation to explain why the United States experienced large current account deficits in the late 1990s.

Does the saving and investment equation imply that a country's national saving must always equal its domestic investment? Explain.

Explain the relationship between net exports and net foreign investment.

An increase in net foreign investment is possible through a decrease in national saving or a decrease in domestic investment.

In the United States,domestic investment is greater than national saving.

How would a decrease in the U.S.budget deficit affect the exchange rate in the market for dollars?

What impact might an increase in the budget deficit have on interest rates and exchange rates?

How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

How might a budget deficit affect the balance of trade?

Saving exceeds domestic investment in Japan,which generates a financial account deficit in Japan's balance of payments.

Persistent current account deficits in the United States

Which of the following is true about the occurrence of the twin deficits?

If you know that a country's net foreign investment is positive,what does that tell you about the relationship between the country's national saving and private investment? (Assume that the capital account is zero and net transfers are zero.)

What two measures of macroeconomic activity are often referred to as the "twin deficits"?