How Government Policies Impact National Saving Rates

Macreconomics: Policy and Practice (Mishkin)
Chapter 4 Saving and Investment in Closed and Open Economies

4.1 Relationship Between Saving and Wealth
1) Private saving refers to ________.
A) disposable income mins consmption e!penditre
B) total e!penditre mins prchases of capital goods
") ta!es pls consmption mins income
#) consmption e!penditre divided b$ disposable income
%) none of the above
Answer& A
'opic& 4.1 Saving and Wealth
() Private saving refers to ________.
A) after)ta! income mins consmption e!penditres
B) a flow variable which adds to the stoc* of wealth
") the private saving rate times disposable income
#) all of the above
Answer& #
+) ,overnment saving refers to ________.
A) ta! revenes mins transfers mins government prchases
B) ta! revenes pls transfers mins government consmption
") the saving rate times transfers
#) national pls private saving
Answer& A
4) ,overnment saving refers to ________.
A) ta! revenes mins transfers mins government consmption mins government investment
B) the government-s ta! receipts mins its otla$s
") national saving mins private saving
#) all of the above
Answer& #
1
"op$right . (/1( Pearson %dcation0 1nc.
2) 3ow can the 4.S. federal government indce increases in the national saving rate5
A) b$ lowering the sales ta!
B) b$ lev$ing ta!es on individal retirement 61RA) acconts
") b$ redcing bdget deficits
#) all of the above
Answer& "
AA"SB& Reflective 'hin*ing
7) 3ow can the 4.S. federal government indce increases in the national saving rate5
A) implementing a vale added ta!
B) lowering the capital gains ta!
") redcing bdget deficits
#) all of the above
Answer& #
8) 9et capital otflows ________.
A) are also *nown as net foreign investment
B) are positive if saving is greater than investment
") are also *nown as the trade balance
#) all of the above
Answer& #
:) When a 4.S. firm sells a good abroad for0 sa$0 1// eros 6assme ;1<1ero) 0 4.S. net e!ports
increase b$ ;1//. 'hese ;1// in e!ports can be acconted for as ;1// increase in capital otflow
becase ________.
A) 1f the 1// eros are *ept in the foreign ban*0 the 4.S. firm is giving a loan to that ban*
B) 1f the 4.S. firm ses the 1// eros to b$ a share of stoc* in a foreign firm0 the firm is
sppl$ing 4.S. capital to that foreign firm
") 1f the 4.S. firm ses the proceeds to bild a new factor$ in that contr$0 it is sppl$ing 4.S.
capital to that contr$
#) all of the above
Answer& #
(
=) When a 4.S. firm sells a good abroad for0 sa$0 1// eros 6assme ;1.2<1ero) 0 4.S. net
e!ports increase b$ ;12/. 'hese ;12/ in e!ports can be acconted for as ;12/ increase in capital
otflow becase ________.
A) private consmption in the foreign contr$ increases b$ ;12/
B) 1f the 4.S. firm ses the 1// eros to b$ a share of stoc* in a foreign firm0 the firm is
sppl$ing 4.S. capital to that foreign firm
") 1f the 4.S. firm ses the proceeds to b$ a 4.S. bond0 capital investment in the foreign
contr$ has increased.
#) all of the above
Answer& B
1/) 1f a 4.S. citi>en deposits ;1/0/// in a foreign ban*0 and the ban* ses the ;1/0/// to b$
assets in the 4.S.0 then ________.
A) the 4.S. has e!perienced a net capital otflow
B) the 4.S. has e!perienced an increase in net e!ports
") the foreign econom$ has e!perienced a net capital otflow
#) the foreign econom$ has e!perienced an increase in net e!ports
Answer& %
11) A foreign ban* receives a deposit of ;1/0/// from a 4.S. citi>en. As a reslt0 there is a net
capital otflow from the 4.S.0 if ________.
A) the ban* b$s a 4.S.)made compter
B) the ban* b$s a bond issed b$ a 4.S. compan$
") the ban* *eeps the ;1/0/// in a valt
#) all of the above
Answer& A
1() Which of the following is a correct statement5
A) Wealth can increase even if there is no saving
B) An increase in net foreign assets alwa$s increases wealth
") ?ow 4.S. national saving is the principal case of the trade deficits the 4.S. has rn since the
1=:/s
#) 'he 4.S will be a net debtor nation for the foreseeable ftre.
%) all of the above
Answer& %
+
1+) Which of the for government policies to stimlate saving is essential5 'hat is0 which polic$
can on its own0 regardless of the other policies0 determine the level of the national saving rate5
Answer& Redce bdget deficits. A higher ta! on consmption will increase national saving onl$
if the government doesn-t spend all of the increased ta! revene. 'a! incentives that reward
private saving directl$0 or encorage private saving b$ increasing the retrn on assets0 will raise
national saving onl$ if government spending is redced to correspond to the decrease in ta!
revenes. 1f nothing is done to promote private saving0 national saving can be raised b$ lowering
the government-s bdget deficit.
14) Wh$ is it important0 for an open econom$0 that investment not be consistentl$ higher than
saving5
Answer& When investment is higher than saving0 the difference is a net capital inflow. 'he e!tra
investment that is financed b$ foreigners is an addition to their wealth0 rather than an increase in
the wealth of domestic citi>ens. 'he income from sch investment mst be paid to the foreign
owners0 ths is not available to contribte to domestic income and saving. 'he sorce of the
capital inflow is a continal e!cess of imports over e!ports 6negative trade balance). 1mports are
being financed throgh the sale of assets to foreigners. 1t is not so mch investment bt
consmption that is nsstainabl$ high@ saving is nsstainabl$ low.
4.( Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in a "losed %conom$
1) 'he real interest rate ________.
A) is the cost of borrowing not adCsted for inflation
B) *eeps the mar*et for saving and consmption in eBilibrim
") describes the real benefit of saving
#) all of the above
Answer& "
'opic& 4.( Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in a "losed %conom$
() 1n the model for desired saving0 autonomous is roghl$ s$non$mos with ________.
A) polic$)determined
B) endogenos
") intended
#) inflation)adCsted
%) e!ogenos
Answer& %
4
+) 'he real interest rate ________.
A) is the cost of borrowing adCsted for inflation
B) *eeps the mar*et for saving and investment in eBilibrim
") describes the real benefit of saving
#) all of the above
Answer& #
4) "onsmption e!penditres are a fnction of ________.
A) the real interest rate
B) disposable income
") atonomos consmption
#) all of the above
Answer& #
2) 1ncreases in ________ t$picall$ lead to decreases in consmption
A) the interest rate
#) all of the above
Answer& A
AA"SB& Anal$tical S*ills
7) 1ncreases in ________ t$picall$ lead to decreases in private saving.
A) the interest rate
#) all of the above
Answer& "
8) 1ncreases in ________ t$picall$ lead to decreases in ________.
A) the interest rate@ saving
B) disposable income@ consmption
") atonomos consmption@ consmption
#) all of the above
Answer& %
2
:) 1n the eBation S < ) ) " ) 0 which of the following is an endogenous variable5
A) r
B)
")
#) all of the above
Answer& A
=) ________ t$picall$ lead to increases in ________.
A) decreases in interest rates @ investment
B) increases in disposable income@ consmption
") increases in atonomos investment@ investment
#) all of the above
Answer& #
1/) Ceteris paribus0 in a closed econom$0 if consmers become more pessimistic ________.
A) atonomos consmption will fall
B) investment will fall
") saving will increase
#) all of the above
Answer& #
11) Ceteris paribus0 in a closed econom$0 if consmers become more optimistic ________.
A) atonomos consmption wold decrease
B) the eBilibrim interest rate shold increase
") saving shold increase
#) all of the above
Answer& B
7
1() 1f government cts ta!es ________.
A) national saving goes p
B) the eBilibrim interest rate wold decrease
") all of the above
#) discretionar$ income goes p
Answer& #
1+) 1n the long rn0 if government increases spending ________.
A) interest rates decrease
B) it crowds ot private investment
") saving increases
#) all of the above
Answer& B
14) 1n the long rn0 larger bdget deficits lead to ________.
A) higher saving levels
B) a fall in investment
") lower interest rates
#) all of the above
Answer& B
12) A bdget deficit ________.
A) ma$ have stimlative effects on economic activit$ in the short rn
B) contribtes to lower interest rates in the long rn
") is li*el$ to increase ftre prodctive capacit$ in the long rn
#) all of the above
Answer& A
8
17) An investment ta! credit ________.
A) is designed to incentivi>e higher capital stoc* e!penditres at an$ given interest rate
B) ma$ lead to increases in atonomos investment
") ma$ pt pward pressre on the interest rate
#) all of the above
Answer& #
18) 3ow does a decline in the real interest rate case an increase in investment5
Answer& 'he real interest rate is the reward for saving and the cost of borrowing. A redced
interest rate will encorage more spending on both consmption and investment. Bsiness firms0
in particlar0 will se available fnds to prchase new capital goods from which to generate
ftre income0 instead of holding financial assets 6e.g.0 government bonds) that offer a redced
income. 'he prchase of capital goods will be financed b$ borrowing0 as well0 so long as the
e!pected income from se of the capital goods e!ceeds the 6redced) cost of borrowing.
1:) 1f ta!es are redced0 will most people save more or less than before5 #oes national saving
rise or fall5 %!plain.
Answer& ?ower ta!es mean higher disposable income0 which shold encorage increases in both
consmption and saving. Redced government revene0 given government spending0 means a
decrease in government saving. Since private saving does not rise as mch as the decrease in
government saving0 national saving falls.
:
4.+ Response to "hanges in Saving and 1nvestment in a "losed %conom$
1) 'here are no Bestions for this section.
Answer&
4.4 Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in an Dpen %conom$
1) 'he domestic real interest rate 6r) for a given contr$ mst be the same as the world real
interest rate 6r
w
)________.
A) if perfect capital mobilit$ is assmed
B) becase with no barriers to capital flows0 if r
w
E r domestic residents wold Cst borrow
abroad ptting pward pressres on the domestic rate ntil both rates eBal each other
") becase with no barriers to capital flows0 if r
w
F r domestic residents wold onl$ lend to
foreigners ptting downward pressres on the domestic rate ntil both rates eBal each other
#) all of the above
Answer& A
'opic& 4.+ Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in an Dpen %conom$
() 1n the model of the open econom$ with perfect capital mobilit$0 ________ is an exogenous
variable.
A) G
B) "
") 1
#) S
%) r
Answer& A
+) 'he domestic real interest rate 6r) for a given contr$ mst be the same as the world real
interest rate 6r
w
)________.
A) onl$ if capital is not perfectl$ mobile
B) becase with no barriers to capital flows0 if r
w
E r domestic residents wold Cst lend abroad
ptting pward pressres on the domestic rate ntil both rates eBal each other
") becase with no barriers to capital flows0 if r
w
F r domestic residents wold onl$ lend to
foreigners ptting downward pressres on the domestic rate ntil both rates eBal each other
#) all of the above
Answer& B
=
4) 1n an econom$ open to international trade ________.
A) saving eBals investment in eBilibrim
B) saving is the difference between net e!ports and investment
") saving eBals investment as long as the econom$ has no e!ports
#) saving eBals investment as long as 9H</
Answer& #
A) saving is net e!ports added to investment
B) saving eBals investment as long as 9H</
") the domestic real interest rate shold eBal the world real interest rate as long as there is
perfect capital mobilit$
#) all of the above
Answer& #
A) saving is the difference between net e!ports and consmption
B) saving eBals investment as long as the domestic real interest rate is eBal to the world real
interest rate
") the domestic real interest rate shold eBal the world real interest rate as long as the econom$
is relativel$ small
#) all of the above
Answer& %
8) 1n an open econom$0 G < " I 1 I , I 9H. Jrom this we ma$ infer that ________.
A) otpt is greater in an open econom$ than in a closed econom$
B) the condition for goods mar*et eBilibrim is that S < 1 I , I 9H
") net e!ports can be >ero onl$ if the domestic real interest rate is eBal to the world real interest
rate
#) if saving is greater than >ero0 9H cannot be >ero
Answer& %
1/
:) Sppose an econom$ has a ,#P of ;1/ trillion0 and that its national saving rate is (/K. 1f
investment is (2K of ,#P0 the vale of net e!ports is ________.
A) negative ;2// billion
B) ;4.2 trillion
") negative ;(2/ billion
#) ;( trillion
Answer& A
=) Sppose consmption is ;2// billion0 investment is ;1(/ billion0 government prchases eBal
;=/ billion0 and net e!ports are negative ;(/ billion. 'he saving rate
G
S
is ________.
A) (/K
B) :+.+K
") 14.2K
#) +K
Answer& "
1/) Sppose ,#P is ;:// billion0 net ta!es eBal ;12/ billion0 government prchases are ;17/
billion0 investment is ;1(/ billion0 and net e!ports are ;2 billion. 'he private saving rate
#
G
P
S

is ________.
A) 1=K
B) 17K
") (1K
#) 1:K
Answer& "
11) When an econom$ becomes attractive to global investors0 spar*ing a capital inflow0 one
reslt is often a decrease in net e!ports. Wh$5
Answer& 'he capital inflow reflects an increase in desired investment in the econom$. With no
change in desired saving0 and total otpt fi!ed in the short rn0 the increase in investment
spending mst either displace e!ports or increase spending on imports0 casing net e!ports to
fall.
1() 1n an open econom$0 an increase in saving might not case an increase in domestic
investment. Wh$ not5 #oes that mean that an increase in saving is ndesirable5
11
Answer& An increase in saving can affect the domestic real interest rate onl$ b$ changing the
world interest rate. 1f the world interest rate does not change0 domestic investment is not
affected. Aore saving means less consmption0 which redces both imports and domestic
demand for domestic otpt0 so e!ports 6and net e!ports) rise. 'he increase in saving mst
correspond to investment somewhere0 bt not necessaril$ in the econom$ where the saving
originates. 9onetheless0 wealth rises for those who accomplish the higher saving.
1+) 1f polic$ma*ers in an open econom$ want to increase the wealth of their citi>ens0 shold the$
see* to increase saving0 or to increase investment5 %!plain.
Answer& Policies to increase investment will increase the domestic capital stoc*. 3owever0 this
adds nothing to citi>ens- wealth0 nless saving has increased. 1f saving is fi!ed0 the increase in
investment is financed either b$ foreigners 6net capital inflow) or b$ a diversion of domestic
saving from foreign assets to domestic assets 6redced net capital otflow). Policies to increase
saving0 if effective0 will increase domestic wealth0 regardless of the level of domestic investment.
4.2 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
1) 1n an econom$ open to international trade where the interest rate at which saving and
investment wold be eBal is ________ the world real interest rate ________.
A) above@ a trade srpls enses
B) below@ a trade deficit enses
") above@ there is a net capital otflow
#) below@ there is a net capital inflow
Answer& %
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
() 1n an econom$ open to international trade where the interest rate at which saving and
investment wold be eBal is ________ the world real interest rate ________.
A) above@ a trade deficit enses
B) below@ there is a net capital otflow
") above@ there is a net capital inflow
#) all of the above
Answer& #
1(
+) 1f the world real interest rate were to fall below the rate at which domestic saving and
investment wold be eBal ________.
A) saving wold be greater than investment so the econom$ wold be rnning a trade deficit
B) investment wold be greater than saving so the econom$ wold be rnning a trade deficit
") investment wold be greater than saving so the econom$ wold be rnning a trade srpls
#) saving wold be greater than investment so the econom$ wold be rnning a trade srpls
Answer& B
Saving-Investment Diagram
4) Based on the Saving)1nvestment #iagram0 if the world real interest rate is indicated b$ A0 then
________.
A) the difference between vales , and % measres the trade srpls
B) the difference between vales , and J measres the trade srpls
") the domestic real interest rate is indicated b$ B
#) desired saving has decreased
Answer& A
1+
2) Based on the Saving)1nvestment #iagram0 if the world real interest rate is indicated b$ "0 then
________.
A) the difference between vales 3 and # measres the net capital otflow
B) the difference between vales 3 and # measres the trade deficit
#) the difference between vales 3 and J measres the trade deficit
Answer& B
7) Based on the Saving)1nvestment #iagram0 if the difference between vales , and % measres
the net capital otflow0 then ________.
A) the difference between vales , and % measres the trade srpls
B) the difference between vales 3 and # measres the trade srpls
#) desired saving has decreased
Answer& A
8) Based on the Saving)1nvestment #iagram0 if the difference between vales , and % measres
A) the difference between vales , and % measres the trade deficit
B) the difference between vales 3 and # measres the trade deficit
") the domestic real interest rate is indicated b$ "
#) desired investment has increased
Answer& %
:) Based on the Saving)1nvestment #iagram0 if the difference between vales , and % measres
A) the difference between vales 3 and % measres the trade deficit
B) the difference between vales J and # measres the trade srpls
") the domestic real interest rate is indicated b$ A
#) the difference between vales J and % measres the trade deficit
Answer& "
14
=) Based on the Saving)1nvestment #iagram0 the difference between vales 3 and % cold
measre the net capital inflow0 if ________.
A) the difference between vales 3 and # measres the trade srpls
B) the domestic real interest rate is indicated b$ A
") desired saving has increased
#) desired investment has decreased
Answer& "
1/) Based on the Saving)1nvestment #iagram0 if the domestic real interest rate is indicated b$ B0
then ________.
A) the vale of net e!ports is >ero
B) the diagram represents a closed econom$
") the world real interest rate is indicated b$ A
#) the difference between vales J and % measres the net capital inflow
Answer& A
11) Based on the Saving)1nvestment #iagram0 if the world real interest rate declines from A to "0
then the change in net e!ports is measred b$ the difference between vales ________.
A) , and %
B) 3 and , pls % and #
") 3 and , mins % and #
#) , and J pls J and %
Answer& B
1() 1f there is a decline in world atonomos consmption ________.
A) the domestic real interest rate wold fall
B) domestic investment wold rise
") net e!ports wold fall
#) all of the above
Answer& #
12
1+) 1f there is a decline in world atonomos consmption ________.
A) domestic investment wold decline
B) the domestic real interest rate wold fall
") net e!ports wold go p
#) all of the above
Answer& B
14) Which of the following wold lead domestic investment to rise5
A) a decline of government spending throghot the world
B) an increase in world ta!es
") a decrease in world atonomos consmption
#) all of the above
Answer& #
12) Which of the following wold lead domestic investment to rise5
A) an increase in government spending throghot the world
B) an increase in world ta!es
") an increase in world atonomos consmption
#) all of the above
Answer& B
17) 1f there is a decrease in world ta!es ________.
A) domestic investment wold fall
B) net e!ports wold increase
") domestic interest rates wold go p
#) all of the above
Answer& #
17
18) 1f there is an increase in world ta!es ________.
B) net e!ports wold increase
") the domestic interest rate wold go down
#) all of the above
Answer& "
1:) 1f there is a decrease in world investment ________.
B) net capital otflow wold increase
") the domestic interest rate wold go p
#) all of the above
Answer& %
1=) 1f there is a decrease in world investment ________.
A) domestic saving wold rise
B) net e!ports wold decrease
") domestic otpt wold go p
#) all of the above
Answer& B
(/) A small open econom$ wold t$picall$ enCo$ a higher trade balance if0 in the domestic
econom$0 ________.
A) atonomos consmption e!penditres decrease
B) ta!es go p
") government spending decreases
#) all of the above
Answer& #
18
(1) A small open econom$ wold t$picall$ enCo$ a higher trade balance if0 in the domestic
econom$0 ________.
A) atonomos consmption e!penditres increase
B) ta!es decrease
") government spending decreases
#) all of the above
Answer& "
(() 'he concept of twin deficits refers to ________.
A) the phenomenon of simltaneos trade and government bdget deficits
B) the phenomenon of simltaneos government and private bdget deficits
") the phenomenon of simltaneos state and federal bdget deficits
#) all of the above
Answer& A
(+) An increase in atonomos investment in a small open econom$ will case ________.
A) a trade srpls to shrin*
B) a trade deficit to increase
") lower net capital otflows
#) all of the above
Answer& #
(4) An increase in atonomos investment in a small open econom$ will case ________.
A) a trade srpls to shrin*
B) a trade deficit to shrin*
") higher net capital otflows
#) all of the above
Answer& A
1:
(2) 1n a small open econom$0 goods mar*et eBilibrim occrs when desired saving minus
desired investment eBals net e!ports. %!plain.
Answer& 'he domestic interest rate eBals the world interest rate0 regardless of the Bantities of
saving and investment. 1f saving is greater than investment at this interest rate0 the e!cess of
saving is sed to prchase foreign assets. 'hen0 the mone$ paid to acBire foreign assets retrns
to prchase domestic goods0 increasing net e!ports. 1f saving is lower than investment0 domestic
assets are being sold to foreigners0 a capital inflow that enables the prchase of imports0 redcing
net e!ports.
(7) 1f desired saving increases in a small open econom$0 net e!ports 6net capital otflow) rise.
What happens to net e!ports if desired saving rises in most of the world-s economies at the same
time5
Answer& An increase in global saving redces the world real interest rate0 which lowers saving
and raises investment in all open economies. 'his conteracts the initial increase in saving. 1n
some economies0 where the initial increase in saving is relativel$ small0 the effect of the redced
interest rate will dominate0 so that net e!ports 6net capital otflow) will decline.
4.7 Response to "hanges in Saving and 1nvestment in a Small Dpen %conom$
1) 'here are no Bestions for this section.
Answer&
4.8 ?arge Lerss Small Dpen %conomies
1) 'he saving)investment anal$sis for large open economies is somewhat more complicated than
the anal$sis for small open economies mainl$ becase ________.
A) there is more information to *eep trac* of for larger economies
B) there are more n*nowns in larger economies
") a larger econom$ ma$ actall$ affect the world econom$
#) all of the above
Answer& "
'opic& 4.2 ?arge verss Small Dpen %conomies
1=
() Which of the following is an e!ogenos variable in the model of a small open econom$0 bt an
endogenos variable in the model of a large open econom$5
A) r
w
B) "
") G
#) 9H
%) ,
Answer& A
+) Which of the following is tre of a small open econom$0 bt not of a large open econom$5
A) 9et e!ports are nli*el$ to be close to >ero.
B) 'he domestic real interest rate is eBal to the world real interest rate.
") "hanges in desired investment reslt in changes in the trade balance.
#) "hanges in desired investment reslt in changes in actal investment.
Answer& %
4) 1f we observe an econom$ in which desired saving has changed0 bt there has been no change
in actal investment0 we ma$ infer that ________.
A) net e!ports have changed
B) actal saving has changed
") the domestic real interest rate has not changed
#) all of the above
Answer& #
A) this is a closed econom$
B) this is a large econom$
") the trade balance has changed in the same direction as the change in desired saving
#) all of the above
Answer& "
(/
A) this is a closed econom$
B) this is a large econom$
") the world real interest rate has not changed
#) all of the above
Answer& "
8) Sppose the world econom$ is divided into two halves. 1n Region A0 all economies e!perience
a decrease in desired saving0 while desired saving is nchanged in Region B. 1f there is open
trade and perfect capital mobilit$ across the two regions0 which of the following is tre5
A) Actal saving in Region B has increased.
B) Actal investment in Region A has increased.
") Region A-s imports from Region B have decreased.
#) all of the above
Answer& A
:) Sppose the world econom$ is divided into two halves. 1n Region A0 all economies e!perience
a decrease in desired saving0 while desired saving is nchanged in Region B. 1f there is open
trade and perfect capital mobilit$ across the two regions0 which of the following is tre5
A) Actal investment in Region B has increased.
B) 'here is a net capital flow from Region B to Region A.
") Actal investment in Region A has increased.
#) all of the above
Answer& B
=) An increase in ________ in an open econom$ of an$ si>e leads to ________.
A) desired saving@ an increase in net capital otflows
B) desired investment@ a decrease in net capital otflows
") desired saving@ an increase in the trade balance
#) all of the above
Answer& #
(1
1/) 1n a large open econom$0 an increase in ________ leads to ________.
A) desired saving@ an increase in the domestic interest rate
B) desired investment@ an decrease in the domestic interest rate
") desired saving@ an increase in desired investment
#) desired saving@ a decrease in actal investment
Answer& %
11) 1n a large open econom$ ________.
A) the direction of the shifts in saving and investment on the trade balance are the same as in a
closed econom$
B) the direction of the shifts in saving and investment on net capital flows are the same as in a
closed econom$
") the direction of the effect on the domestic real interest rate and the actal levels of saving and
investment are the same as in a closed econom$
#) all of the above
Answer& "
1() 1n a large open econom$ ________.
A) direction of the shifts in saving and investment on the trade balance are the same as for a
small open econom$
B) the direction of the shifts in saving and investment on net capital flows are the same as for a
small open econom$
investment are the same as in a closed econom$
#) all of the above
Answer& #
((
1+) 1n a large open econom$ ________.
A) direction of the shifts in saving and investment on the trade balance are the same as for a
small open econom$
B) the direction of the shifts in saving and investment on net capital flows are the same as in a
closed econom$
investment are the same as in a small open econom$
#) all of the above
Answer& A
14) "hina is a large open econom$ with an e!traordinaril$ high saving rate. 1f0 as seems li*el$0
there is a decrease in desired saving in the coming $ears0 what effects shold we e!pect to see on
"hina-s trade balance 6net capital flow)0 domestic real interest rate0 and actal levels of saving
and investment5
Answer& A decrease in desired saving leads to a decrease in the trade balance 6net capital
otflow)0 and an increase in the domestic real interest rate. 'he higher interest rate will prevent
actal saving from falling as mch as it wold otherwise0 bt actal saving does decline. 'he
higher interest rate cases actal investment to decline0 redcing the si>e of the decline in the
trade balance 6net capital otflow).
(+

How Government Policies Impact National Saving Rates

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

How Government Policies Impact National Saving Rates

Uploaded by

Copyright:

Available Formats

Macreconomics: Policy and Practice (Mishkin)

Chapter 4 Saving and Investment in Closed and Open Economies

You might also like