MANKIW: PRINCIPLES OF MACROECONOMICS
8th Edition
ISBN: 9781337801782
Author: Mankiw
Publisher: CENGAGE L
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Chapter 18, Problem 2QR
To determine
Relationship between investment, saving, and net capital outflow.
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Chapter 18 Solutions
MANKIW: PRINCIPLES OF MACROECONOMICS
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- A 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_forwardIn 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_forwardExplain 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_forward
- Please 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_forwardDiscuss the role of budget surpluses and trade surpluses in national saving and investmentarrow_forward
- 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.arrow_forward#_arrow_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_forward
- What is the saving and investment equation? If national saving declines what will happen to domestic investment and net foreign investment?arrow_forwardStudies indicate that net exports and net capital outflows tend to be equal. 1. Explain why net exports and net capital outflows always tend to be equal. 2. Explain how a change in interest rates can lead to changes in net exports?arrow_forwardSolve Question 2 and all sub questionsarrow_forward
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