Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 32, Problem 2PA
Sub part (a):
To determine
Impact of investment tax credit that subsidizes domestic investment.
Sub part (b):
To determine
Impact of investment tax credit that subsidizes domestic investment.
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Let’s assume that some foreign countries start to subsidize investment by instituting an investmenttax credit.a) What happens to world investment demand as a function of the world interest rate?b) What happens to the world interest rate?c) What happens to investment in our small open economy?d) What happens to our trade balance?e) What happens to our real exchange rate?
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Chapter 32 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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Similar questions
- Table 23.7 provides some hypothetical data on macroeconomic accounts for three countries represented by A. B, and C and measured in billions of currency units. In Table 23.7, private household saving is SH, tax revenue is T, government spending is G, and investment spending is Calculate the trade balance and the net inflow of foreign saving for each country. State whether each one has a trade surplus or deficit (or balanced trade). State whether each is a net lender or borrower internationally and explain.arrow_forwardOccasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?arrow_forwardOccasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad.Explain why such a statement is economically impossible.arrow_forward
- Using the national savings and investment identity, explain how each of the following changes (ceteris paribus) will increase or decrease the trade balance: a. A lower domestic savings rate b. The government changes from running a budget surplus to running a budget deficit c. The rate of domestic investment surgesarrow_forwardHow a devaluation may reduce the trade deficit of a country? What condition is required to reduce trade deficit? If this condition is not met , what type of effect may arise?arrow_forwardOn what two factors does the return on a foreign investment depend?arrow_forward
- Which of the following measures would best rectify a deficit on a country's Balance of Payments Account? a. Revaluing the currency b. Relaxing exchange controls c. Deflationary fiscal policy d. Lowering tariff barriersarrow_forwardImagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1% of Germany’s GDP; private savings is 20% of GDP; and physical investment is 18% of GDP. a. Based on the national saving and investment identity, what is the current account balance? b. If the government budget surplus falls to zero, how will this affect the current account balance?arrow_forwardWhy does a recession cause a trade deficit to increase?arrow_forward
- Exchange Rate Effects on Trade Explain why a stronger dollar could enlarge the U.S. balance-of-trade deficit. Explain why a weaker dollar could affect the U.S. balance-of-trade deficit.arrow_forwardA government official announces a new policy. The country wishes to eliminate its trade deficit, but will strongly encourage financial investment from foreign firms. Explain why such a statement is self- contradictory.arrow_forwardQ5 . Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy. a. Living in an especially large country b. Having a domestic investment rate much higher than the domestic savings rate c. Having many other large economies geographically nearby d. Having an especially large budget deficit e. Having countries with a tradition of strong protectionist legislation shutting out importsarrow_forward
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