Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
8th Edition
ISBN: 9781337607735
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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Suppose that Congress is considering an investment tax credit, which subsidizes domestic investment. a. How does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance?b. Representatives of several large exporters oppose the policy. Why might that be the case?
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
Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
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- 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_forwardIf domestic investment increases, and there is no change in the amount of private and public saving, what must happen to the size of the trade deficit?arrow_forward
- Occasionally, 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_forwardUsing 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_forward
- On what two factors does the return on a foreign investment depend?arrow_forwardWhich 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_forward
- Why does a recession cause a trade deficit to increase?arrow_forwardExchange 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_forward
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