Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 5, Problem 5RQ
a)
To determine
To show:Investment and national savingsfor small open economy are not equal.
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When there are two large open economies in the world, if capital goods become relatively
cheaper compared to consumption goods in the foreign country, the foreign country's saving will
and the foreign country's investment will
fall; rise
rise; fall
rise; rise
fall; fall
Explain why, in a small open economy, national saving can be less than investment. Use a savings-investment graph to explain
Which of the following is TRUE of an open economy?
GDP=C+I+G+X-IM
OGDP =C+I+G
GDP=T-TR-G
GDP = Sprivate + SGovernment
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- Which of the following statements is true for the small open economy? a.Saving is not always equal to investment b.Saving is always greater than investment c.Saving is always equal to investment d.Saving is always less than investment Clear my choicearrow_forwardFor an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that a. S = I. b. S = / + NX. C./ = S + NX. d. S = 0.arrow_forwardDiscuss the circular flow diagram of an open economy. Apply the circular flow diagramto a country of your choice.arrow_forward
- Discuss the role of budget surpluses and trade surpluses in national saving and investmentarrow_forwardAnswer These Three Sub Parts i) In an open economy, Y = C + I + G + NX. Using symbols from this identity, write anexpression that defines national saving, S, in an open economy.S = _________________________ . ii) True or False? In an open economy, the following is always true: S = I + NCO, where I isinvestment spending and NCO is net capital outflow. iii) In an open economy, a country’s net capital outflow is:a.) the value of domestic assets purchased by foreigners minus the value of foreign assetspurchased by domestic residentsb.) the value of foreign assets purchased by domestic residents minus the value of domesticassets purchased by foreigners.arrow_forwardI need an answer max in an hour please. "Say whether following statement is True or False and Please provide a concise explanation of this as well as an explanation with a diagram, if its possible to do." If there are free flows of capital in an open economy, all countries share a common production function and technology, and have the same depreciation rate, we would expect to observe unconditional convergence of levels of per capita output, but not per capita consumption.arrow_forward
- Which of the following is TRUE of an open economy? GDP = C+I+G+X- IM O GDP = C+ I+G GDP = T- TR -G GDP = SPrivate + SGovernment %3Darrow_forward"Consider a small open economy that produces and consumes two goods: textiles and technology. The country has experienced a technological breakthrough in textile manufacturing, increasing its productivity. At the same time, the global demand for technology, the country's other export, has decreased. Analyze the following: a) How would the technological breakthrough in textile manufacturing affect the country's production possibility frontier? b) What could be the short-term and long-term effects on the country’s terms of trade? c) Discuss how the decrease in global demand for technology could influence the country's export revenues and economic growth. d) Propose one policy measure the government could take to mitigate any negative impacts on the economy due to these changes."arrow_forwardFully examine the circular flow diagram of an open economy. Apply the circular flow diagram to a country of your choice.arrow_forward
- How will you differentiate an open economy from a closed economy? Explain with the help of an example.arrow_forwardIn an open economy, why is the supply of loanable funds upward sloping? a) A higher real interest rate discourages domestic consumers from buying foreign assets. b) A lower interest rate makes borrowing more expensive. c) A lower real interest rate encourages people to save. d) A higher real interest rate encourages people to save.arrow_forwardIn a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private investment in this economy?arrow_forward
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