Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN: 9781285165912
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 18, Problem 2QR
To determine
Relationship between investment, saving, and net capital outflow.
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Principles of Macroeconomics (MindTap Course List)
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- What variable makes the relevance/link between loanable funds market and market for foreign-currency exchange?arrow_forwardA U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which one(s) of these is the foreign direct investment? Which one(s) would be taken into account when computing U.S. net capital outflows?arrow_forwardHolding national savings constant, does an increase in net capital outflow increase, decrease, or have no effect on a country’s accumulation of domestic capital?arrow_forward
- Explain the effect of an investment tax credit policy on interest rate, loanable funds, net capital outflow, real exchange rate and trade balance in a large open economy. Also support your point of view by graph.arrow_forwardPlease provide step-by-step answers with an explanationarrow_forwardExplain how the following transactions would affectU.S. net capital outflow. For each transaction, statewhether it represents direct investment or portfolioinvestment.a. An American cellular phone company establishesan office in the Czech Republic.b. Harrods of London sells stock to the GeneralMotors pension fund.c. Honda expands its factory in Marysville, Ohio.d. A Fidelity mutual fund sells its Volkswagen stockto a French investor.arrow_forward
- State whether each of the following events involves a financial inflow to or outflow from the Kenyan economy. Explain your answer. i)Export sales to Uganda ii) Returns being paid on past Kenyan financial investments in Rwanda. iii) Foreign aid from Kenya to Djibouti iv) Imported oil from Oman v) Chinese investors buying Kenyan real estatearrow_forwardBecause 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…arrow_forwardWhat is the saving and investment equation? If national saving declines what will happen to domestic investment and net foreign investment?arrow_forward
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