Which of the following represent a source of supply to US financial capital markets? Private Savings & Inflow of foreign savings Private Savings & Private Investment Public Savings & Public Investment Inflow of foreign savings & Outflow of US capital

Which of the following represent a source of supply to US financial capital markets? Private Savings & Inflow of foreign savings Private Savings & Private Investment Public Savings & Public Investment Inflow of foreign savings & Outflow of US capital

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN:9781285165912

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Open-Economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 3QCMC

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Question

Which of the following represent a source of supply to US financial capital markets?

Private Savings & Inflow of foreign savings

Private Savings & Private Investment

Public Savings & Public Investment

Inflow of foreign savings & Outflow of US capital

Definition Definition Income earned by a government that is not spent on current expenses, but rather saved for future investments or to pay off debts. It is the difference between government revenue and expenditures, and can be positive or negative.

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Holding national savings constant, does an increase in net capital outflow increase, decrease, or have no effect on a country’s accumulation of domestic capital?
Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing (Balanced trade/ a trade deficit/ a trade surplus) Now, suppose the government is experiencing a budget deficit. This means that ( National saving will increase/ national saving will decrease/ Domestic investment will increase / domestic investment will decrease) which leads to ( an increase in the supply of / a decrease in the supply of / an increase in the demand for/ a decrease in the demand for) loanable funds. After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign-currency exchange market. Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to show the supply curve after the budget deficit. Summarize the…
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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 40 25 -15 6 35 30 -10 5 30 35 -5 4 25 40 0 3 20 45 5 2 15 50 10 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.
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