The net foreign assets (NFA) dynamics equation:NFAtYt=NFAt-1/Yt-1+ (i+лt)NFAt-1/Yt-1-gtNFAt-1/Yt-1+NXt/Yt.NFAt-net foreign assets, Yt - nominal GDP, it - nominal interest rate, лt - inflation rate,gt-compounded GDP growth rate, NXt - net export, t - year. Each term is referred to as "contribution of".Current account CAt=NFAt-NFAt-1Flow identity S/Y = I/Y+NX/Y, where S-savings, I- investmentsLawson Doctrine Sp+Sg = I + NX, wher Sp=Y-T-C private savings, Sg= T-Ggovernment savings, T-taxes,G-government purchases. Assumed NX=020142015Real GDP growth (annual percent)3.63.9Inflation (annual percent)5.25.6Interest rate (nominal, annual percent)6.36.9Net export (percent of GDP)3.91.7Net foreign assets (percent of GDP)4.7?Savings (percent of GDP)21.324.5What is the contribution of the real interest rate of 2014 to the net-foreign-assets-to-GDP ratio of 2015?A. 0.12%B. 0.26%C. 0.35%D. 0.63%

Step 1:The net foreign assets (NFA) dynamics equation can be expressed as follows:NFA(t) = NFA(t-1)…

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Brief Principles of Macroeconomics (MindTap Course List)

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Author:N. Gregory Mankiw

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Chapter13: Open-economy Macroeconomics: Basic Concepts

Section13.1: The International Flows Of Goods And Capital

Problem 1QQ

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The net foreign assets (NFA) dynamics equation:
NFAtYt=NFAt-1/Yt-1+ (i+лt)NFAt-1/Yt-1-gtNFAt-1/Yt-1+NXt/Yt.
NFAt-net foreign assets, Yt - nominal GDP, it - nominal interest rate, лt - inflation rate,
gt-compounded GDP growth rate, NXt - net export, t - year. Each term is referred to as "contribution of".
Current account CAt=NFAt-NFAt-1
Flow identity S/Y = I/Y+NX/Y, where S-savings, I- investments
Lawson Doctrine Sp+Sg = I + NX, wher Sp=Y-T-C private savings, Sg= T-Ggovernment savings, T-taxes,
G-government purchases. Assumed NX=0
2014
2015
Real GDP growth (annual percent)
3.6
3.9
Inflation (annual percent)
5.2
5.6
Interest rate (nominal, annual percent)
6.3
6.9
Net export (percent of GDP)
3.9
1.7
Net foreign assets (percent of GDP)
4.7
?
Savings (percent of GDP)
21.3
24.5
What is the contribution of the real interest rate of 2014 to the net-foreign-assets-to-GDP ratio of 2015?
A. 0.12%
B. 0.26%
C. 0.35%
D. 0.63%

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