Figure 1: US Saving, Investment, and Net Capital Outflow (NCO)25.00%20.00%15.00%10.00%5.00%Investment0.00%-5.00%-10.00%SavingSource: US. Department of Commerce.199020052015From the above graph, we can infer that since the 1980s,The US has been running a trade surplus and there has been a net capital outflow.The US has been running a trade surplus and there has been a net capital outflow.O The US has been running a trade deficit and there has been a net capital outflow.O The US has been running a trade deficit and there has been a net capital inflow.% ofGDP196019651970197519801985199520002010%

Capital inflow: - Capital inflow means the inflow of foreign capital into the country.

Answered: Figure 1: US Saving, Investment, and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 60 25 -10 6 55 30 -5 5 50 35 0 4 45 40 5 3 40 45 10 2 35 50 15 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. On the following graph, plot the relationship between the real…
QUESTION 8 Suppose the development of the European Union leads to a greater demand for investment in Europe. You'd expect OA, a recession in Europe. B. a decline in the world real interest rate. OC, a rise in the current account in Europe. D. an increase in the world real interest rate.
10.Suppose in a small open economy, real GDP is $500 billion, consumption is $300 billion, investment is $120 billion, government purchases equal $100 billion, exports are $80 billion, and imports are $100 billion. whether this small country’s interest rate, rE, is above, below, or equal to the world interest rate, rw? Is S>I or I>S, or S=I in this economy? Using the saving-investment diagram for a small open economy, show your answer on the graph. Clearly mark both rE and rw and trade deficit/surplus (or capital inflow/outflow).
A6 describe the changes of current, capital, and financial account balances. Is the deficit of current account financed by the surplus of capital and financial accounts for that country? Or is an opposite pattern found in a specific time period? Do you observe the inverse relationship between current and capital/financial account balances for these countries?
Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 50 20 -10 6 45 30 -5 5 40 40 4 35 50 30 60 10 2 25 70 15 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable Funds 10 Demand 8 Supply Equilibrium 2 20 40 60 80 100 QUANTITY OF LOANABLE FUNDS REAL INTEREST RATE
a Figure 1 shows the exogenous world interest rate (r*) determines the level of investment (I) and the difference between saving (S) and investment determines net capital outflow and net exports (NX) for a small open economy. What would happen to I, NX and S if: i. The government of this small open economy uses expansionary fiscal policy. ii. The government of other countries (abroad) uses contractionary fiscal policy. b Suppose the price of a cup of tea is Rs.50 in Pakistan and $2 in USA, the value of nominal exchange rate is $0.006364 per PKR. Calculate the value of real exchange rate (ε) and interprete its meaning. Also, discuss the relationship between net exports (NX) and real exchange rate. c Briefly explain the theory of purchasing power parity (PPP) with the help of example.
1.Determine the initial effect from the following transactions on the Malaysia net exports (exports and imports) or net capital outflow (purchase of foreign assets by locals and purchase of domestic assets by foreigners). a. A Japanese spending his time and money having a vacation in Singapore. b. Megan, an American buying a pair of shoes from Bata shoes made in Malaysia.
1. Other things equal, what is the likely impact of a U.S. trade deficit on 1. the current account? 2. foreign savings if domestic investment is greater than domestic saving? 3. foreign savings if domestic investment is less than domestic saving?
Since the early 2000s, the U.S. net exports of services has _____________ and U.S. net exports of goods has _____________. a. increased, decreased b. decreased, increased c. increased, increased d. decreased, decreased
2. Determining long-term exchange rates Consider two countries, the United States and Japan, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in Japan. The following graph shows the supply and demand for the Japanese yen in the United States before the change in productivity. The vertical axis is the exchange rate of the yen in terms of the dollar, and the horizontal axis is the quantity of yen Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph Note: Select and drag one or both of the curves to the desired position. Curves will snap Into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther EXCHANGE RATE (Dollars per yeni Demand QUANTITY (Millions of yen) As a result of the change in productivity, the U.S. doilar appreciates depreciates Demand 161 Supply
2. The Table gives some information about Canada's international transactions in 2010. Item Billions of dollars. Imports of goods and services Net foreign investment in Canada Exports of goods and services. Net interest income. Net transfers Statistical discrepancy 508 54 476 16 (-3) 1 (a) Calculate the balance on the three balance of payments accounts. (b) Was Canada a net borrower or a net lender in 2010? Explain your answer.
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