PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 11, Problem 6P
(a)
To determine
Determine the changes in the real interest rate and capital investment when the investment opportunities improve the technologies.
(b)
To determine
Determine the changes in the real interest rate and capital investment when the government has deficit budget.
(c)
To determine
Determine the changes in the real interest rate and capital investment when the domestic saving increases.
(d)
To determine
Determine the changes in the real interest rate and capital investment when the foreign investors believe that the riskiness of lending to the country has increased.
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Tariffs policy encourages the American consumers to buy American products by making imported goods more expensive, especially goods from China. The Biden administration has not indicated that it plans to lower the hefty tariffs that Mr. Trump placed on Chinese goods. Using appropriate diagrams for the loanable funds market, the net foreign investment, and the market for foreign currency exchange in the United States (US), critically analyse:
(a) How does this trade policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance in the US?
A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country’s assets, what was this country’s saving? Explain how you found your answer.
Economics
Consider the following data for country B, an open economy, for this year:
Y = $14 trillion
C = $6 trillion
G = $2 trillion
NX = $3 trillion
T = $4 trillion
TR = $0.5 trillion
a) Find country B’s domestic investment.
b) Find country B’s private saving.
c) Find country B’s public saving.
d) Find country A’s national saving.
e) Find country B’s net foreign investment
Chapter 11 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- If the quantity of loanable funds supplied is greater than the quantity demanded, what are the excess funds used for? a. Canadians to purchase foreign financial assets b. Canadians to purchase domestic investments c. foreigners to purchase Canadian assets d. foreigners to purchase Canadian goodsarrow_forwardFind a quote below and illustrate the effect of these phenomena on the world market for loanable funds. Make sure to explain the change of the equilibrium price and quantity of loanable funds. “Many Economists worry that the aging populations of industrial countries are going to start running down their savings just when the investment appetite of emerging economies, mostly in East Asia, is growing”.arrow_forwardIn the Model of Open Economy (Figure 1 below), use Saving (S), Investment (1), Net Export (NX), Net Capital Outflow (NCO) or their combinations to fill in the blanks in below: a. Demand of Loanable Funds is b. Supply of Loanable Funds is c. Demand of Domestic Currency is d. Supply of Domestic Currency is Fill in the blank with the comma separating the answers, for example: S, S+1, NX, NCOarrow_forward
- In an open economy, the source of the demand for loanable funds is Group of answer choices investment + net capital outflow national saving + net capital outflow investment + the government budget deficit national savingarrow_forwardLow interest rates means low inflation which means depreciated currency. This stimulates businessmen to invest abroad as interest rates are low. How can they invest abroad if the currency is depreciated? Wouldn't that be illogical and unfeasible? (According to Mankiw's textbook)Lower Interest rates encourage additional investment spending, which gives the economy a boost in times of slow economic growth. (Investopedia) Is this talking about investment spending abroad or investment spending in general? If Investment abroad increases how can that boost the economy? Aren't those statements contradictory?Recently, Turkey has experienced high inflation and high interest rates. IN spite of that its currency depreciated at historical levels. Is this because of other reasons than high inflation and high interest rates? Do we normally assume "ceteris paribus" when talking about this correlation? Even though its currency depreciated, there were investments made in Turkey. Why?arrow_forwardSuppose that we’re in an open economy with this situation: - C = $85.890 - I = $125.000 - G = $56.700 - X = $65.000 - M = $55.000 - T = $60.000 Calculate GDP, national saving, private saving, and public saving. Does it has budget deficit or budget surplus?arrow_forward
- Why would removing a trade restriction, such as a tariff, lead to more rapid economic growth? Explain how higher savings leads to a higher standard of living. What might deter a policymaker from trying to raise the rate of saving? What is a budget deficit? How does it affect interest rates, investments and economic growth? How does the financial system coordinate saving and investment? What is the financial system, Name and describe two markets that are part of the financial system in the U.S. economy. Name and describe two financial intermediaries. GDP in 2019 was $21 trillion. Consumption equals $12 trillion. Government spending was $5 trillion. The budget deficit was $600 billion. Why do economists use real GDP rather than nominal GDP to gauge economic well-being? Define "Real" and "Nominal" GDP and explain the differences between them (Real and Nominal GDP). Explain why an economy's income must equal its expenditure.arrow_forwardThe following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO) measured in terms of the Mexican currency, the peso. The Market for Loanable Funds in MexicoDemandSupply012345678987654321REAL INTEREST RATE (Percent)LOANABLE FUNDS (Billions of pesos)Demand Supply Mexican Net Capital OutflowNCO-4-3-2-10123456987654321REAL INTEREST RATE (Percent)NET CAPITAL OUTFLOW (Billions of pesos)NCO Complete the first row of the table to reflect the state of the markets in Mexico. Real Interest Rate Net Capital Outflow (NCO) (Percent) (Billions of pesos) Initial state After capital flight Now, suppose that Mexico experiences a sudden bout of political turmoil, which causes world financial markets to become uneasy. Because people now view Mexico as unstable, they decide to pull some of their assets out of Mexico and put them into more…arrow_forward1. Let C denote the total national consumption (in billions of euro) for a certain country and let I denote the total national income (in billions of euro) for that same country. The consumption function C(I) expresses the relationship between both. For the country we are looking at, this function is given by C = √20+81 with domain I > 10. a. Explain why the domain of C is [10, +∞[. You might want to graph the function and the line C = I with your calculator. b. Find the average rate of change in consumption when the income increases from I = 10 to I = 15. c. Give the economic interpretation of your answer to b. d. Give the graphical interpretation of your answer to b. e. The marginal propensity to consume is the instantaneous rate of change of C with respect to I. Find the marginal propensity to consume of the country for an income of 10 billion euro. f. Give a precise economic interpretation of your answer to e. g. Give the graphical interpretation of your answer to e.arrow_forward
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