Professional Documents
Culture Documents
G
S
is ________.
A) (/K
B) :+.+K
") 14.2K
#) +K
%) none of the above
Answer& "
'opic& 4.+ Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in an Dpen %conom$
AA"SB& Anal$tical S*ills
1/) Sppose ,#P is ;:// billion0 net ta!es eBal ;12/ billion0 government prchases are ;17/
billion0 investment is ;1(/ billion0 and net e!ports are ;2 billion. 'he private saving rate
#
G
P
S
is ________.
A) 1=K
B) 17K
") (1K
#) 1:K
%) none of the above
Answer& "
'opic& 4.+ Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in an Dpen %conom$
AA"SB& Anal$tical S*ills
11) When an econom$ becomes attractive to global investors0 spar*ing a capital inflow0 one
reslt is often a decrease in net e!ports. Wh$5
Answer& 'he capital inflow reflects an increase in desired investment in the econom$. With no
change in desired saving0 and total otpt fi!ed in the short rn0 the increase in investment
spending mst either displace e!ports or increase spending on imports0 casing net e!ports to
fall.
'opic& 4.+ Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in an Dpen %conom$
AA"SB& Anal$tical S*ills
1() 1n an open econom$0 an increase in saving might not case an increase in domestic
investment. Wh$ not5 #oes that mean that an increase in saving is ndesirable5
11
"op$right . (/1( Pearson %dcation0 1nc.
Answer& An increase in saving can affect the domestic real interest rate onl$ b$ changing the
world interest rate. 1f the world interest rate does not change0 domestic investment is not
affected. Aore saving means less consmption0 which redces both imports and domestic
demand for domestic otpt0 so e!ports 6and net e!ports) rise. 'he increase in saving mst
correspond to investment somewhere0 bt not necessaril$ in the econom$ where the saving
originates. 9onetheless0 wealth rises for those who accomplish the higher saving.
'opic& 4.+ Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in an Dpen %conom$
AA"SB& Reflective 'hin*ing
1+) 1f polic$ma*ers in an open econom$ want to increase the wealth of their citi>ens0 shold the$
see* to increase saving0 or to increase investment5 %!plain.
Answer& Policies to increase investment will increase the domestic capital stoc*. 3owever0 this
adds nothing to citi>ens- wealth0 nless saving has increased. 1f saving is fi!ed0 the increase in
investment is financed either b$ foreigners 6net capital inflow) or b$ a diversion of domestic
saving from foreign assets to domestic assets 6redced net capital otflow). Policies to increase
saving0 if effective0 will increase domestic wealth0 regardless of the level of domestic investment.
'opic& 4.+ Saving0 1nvestment0 and ,oods Aar*et %Bilibrim in an Dpen %conom$
AA"SB& Reflective 'hin*ing
4.2 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
1) 1n an econom$ open to international trade where the interest rate at which saving and
investment wold be eBal is ________ the world real interest rate ________.
A) above@ a trade srpls enses
B) below@ a trade deficit enses
") above@ there is a net capital otflow
#) below@ there is a net capital inflow
%) none of the above
Answer& %
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
() 1n an econom$ open to international trade where the interest rate at which saving and
investment wold be eBal is ________ the world real interest rate ________.
A) above@ a trade deficit enses
B) below@ there is a net capital otflow
") above@ there is a net capital inflow
#) all of the above
%) none of the above
Answer& #
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
1(
"op$right . (/1( Pearson %dcation0 1nc.
+) 1f the world real interest rate were to fall below the rate at which domestic saving and
investment wold be eBal ________.
A) saving wold be greater than investment so the econom$ wold be rnning a trade deficit
B) investment wold be greater than saving so the econom$ wold be rnning a trade deficit
") investment wold be greater than saving so the econom$ wold be rnning a trade srpls
#) saving wold be greater than investment so the econom$ wold be rnning a trade srpls
%) none of the above
Answer& B
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
Saving-Investment Diagram
4) Based on the Saving)1nvestment #iagram0 if the world real interest rate is indicated b$ A0 then
________.
A) the difference between vales , and % measres the trade srpls
B) the difference between vales , and J measres the trade srpls
") the domestic real interest rate is indicated b$ B
#) desired saving has decreased
%) none of the above
Answer& A
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
1+
"op$right . (/1( Pearson %dcation0 1nc.
2) Based on the Saving)1nvestment #iagram0 if the world real interest rate is indicated b$ "0 then
________.
A) the difference between vales 3 and # measres the net capital otflow
B) the difference between vales 3 and # measres the trade deficit
") the domestic real interest rate is indicated b$ B
#) the difference between vales 3 and J measres the trade deficit
%) none of the above
Answer& B
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
7) Based on the Saving)1nvestment #iagram0 if the difference between vales , and % measres
the net capital otflow0 then ________.
A) the difference between vales , and % measres the trade srpls
B) the difference between vales 3 and # measres the trade srpls
") the domestic real interest rate is indicated b$ B
#) desired saving has decreased
%) none of the above
Answer& A
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
8) Based on the Saving)1nvestment #iagram0 if the difference between vales , and % measres
the net capital otflow0 then ________.
A) the difference between vales , and % measres the trade deficit
B) the difference between vales 3 and # measres the trade deficit
") the domestic real interest rate is indicated b$ "
#) desired investment has increased
%) none of the above
Answer& %
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
:) Based on the Saving)1nvestment #iagram0 if the difference between vales , and % measres
the net capital otflow0 then ________.
A) the difference between vales 3 and % measres the trade deficit
B) the difference between vales J and # measres the trade srpls
") the domestic real interest rate is indicated b$ A
#) the difference between vales J and % measres the trade deficit
%) none of the above
Answer& "
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
14
"op$right . (/1( Pearson %dcation0 1nc.
=) Based on the Saving)1nvestment #iagram0 the difference between vales 3 and % cold
measre the net capital inflow0 if ________.
A) the difference between vales 3 and # measres the trade srpls
B) the domestic real interest rate is indicated b$ A
") desired saving has increased
#) desired investment has decreased
%) none of the above
Answer& "
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
1/) Based on the Saving)1nvestment #iagram0 if the domestic real interest rate is indicated b$ B0
then ________.
A) the vale of net e!ports is >ero
B) the diagram represents a closed econom$
") the world real interest rate is indicated b$ A
#) the difference between vales J and % measres the net capital inflow
%) none of the above
Answer& A
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
11) Based on the Saving)1nvestment #iagram0 if the world real interest rate declines from A to "0
then the change in net e!ports is measred b$ the difference between vales ________.
A) , and %
B) 3 and , pls % and #
") 3 and , mins % and #
#) , and J pls J and %
%) none of the above
Answer& B
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
1() 1f there is a decline in world atonomos consmption ________.
A) the domestic real interest rate wold fall
B) domestic investment wold rise
") net e!ports wold fall
#) all of the above
%) none of the above
Answer& #
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
12
"op$right . (/1( Pearson %dcation0 1nc.
1+) 1f there is a decline in world atonomos consmption ________.
A) domestic investment wold decline
B) the domestic real interest rate wold fall
") net e!ports wold go p
#) all of the above
%) none of the above
Answer& B
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
14) Which of the following wold lead domestic investment to rise5
A) a decline of government spending throghot the world
B) an increase in world ta!es
") a decrease in world atonomos consmption
#) all of the above
%) none of the above
Answer& #
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
12) Which of the following wold lead domestic investment to rise5
A) an increase in government spending throghot the world
B) an increase in world ta!es
") an increase in world atonomos consmption
#) all of the above
%) none of the above
Answer& B
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
17) 1f there is a decrease in world ta!es ________.
A) domestic investment wold fall
B) net e!ports wold increase
") domestic interest rates wold go p
#) all of the above
%) none of the above
Answer& #
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
17
"op$right . (/1( Pearson %dcation0 1nc.
18) 1f there is an increase in world ta!es ________.
A) domestic investment wold fall
B) net e!ports wold increase
") the domestic interest rate wold go down
#) all of the above
%) none of the above
Answer& "
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
1:) 1f there is a decrease in world investment ________.
A) domestic investment wold fall
B) net capital otflow wold increase
") the domestic interest rate wold go p
#) all of the above
%) none of the above
Answer& %
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
1=) 1f there is a decrease in world investment ________.
A) domestic saving wold rise
B) net e!ports wold decrease
") domestic otpt wold go p
#) all of the above
%) none of the above
Answer& B
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
(/) A small open econom$ wold t$picall$ enCo$ a higher trade balance if0 in the domestic
econom$0 ________.
A) atonomos consmption e!penditres decrease
B) ta!es go p
") government spending decreases
#) all of the above
%) none of the above
Answer& #
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
18
"op$right . (/1( Pearson %dcation0 1nc.
(1) A small open econom$ wold t$picall$ enCo$ a higher trade balance if0 in the domestic
econom$0 ________.
A) atonomos consmption e!penditres increase
B) ta!es decrease
") government spending decreases
#) all of the above
%) none of the above
Answer& "
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
(() 'he concept of twin deficits refers to ________.
A) the phenomenon of simltaneos trade and government bdget deficits
B) the phenomenon of simltaneos government and private bdget deficits
") the phenomenon of simltaneos state and federal bdget deficits
#) all of the above
%) none of the above
Answer& A
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
(+) An increase in atonomos investment in a small open econom$ will case ________.
A) a trade srpls to shrin*
B) a trade deficit to increase
") lower net capital otflows
#) all of the above
%) none of the above
Answer& #
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
(4) An increase in atonomos investment in a small open econom$ will case ________.
A) a trade srpls to shrin*
B) a trade deficit to shrin*
") higher net capital otflows
#) all of the above
%) none of the above
Answer& A
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Anal$tical S*ills
1:
"op$right . (/1( Pearson %dcation0 1nc.
(2) 1n a small open econom$0 goods mar*et eBilibrim occrs when desired saving minus
desired investment eBals net e!ports. %!plain.
Answer& 'he domestic interest rate eBals the world interest rate0 regardless of the Bantities of
saving and investment. 1f saving is greater than investment at this interest rate0 the e!cess of
saving is sed to prchase foreign assets. 'hen0 the mone$ paid to acBire foreign assets retrns
to prchase domestic goods0 increasing net e!ports. 1f saving is lower than investment0 domestic
assets are being sold to foreigners0 a capital inflow that enables the prchase of imports0 redcing
net e!ports.
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
(7) 1f desired saving increases in a small open econom$0 net e!ports 6net capital otflow) rise.
What happens to net e!ports if desired saving rises in most of the world-s economies at the same
time5
Answer& An increase in global saving redces the world real interest rate0 which lowers saving
and raises investment in all open economies. 'his conteracts the initial increase in saving. 1n
some economies0 where the initial increase in saving is relativel$ small0 the effect of the redced
interest rate will dominate0 so that net e!ports 6net capital otflow) will decline.
'opic& 4.4 Saving0 1nvestment0 and the 'rade Balance in a Small Dpen %conom$
AA"SB& Reflective 'hin*ing
4.7 Response to "hanges in Saving and 1nvestment in a Small Dpen %conom$
1) 'here are no Bestions for this section.
Answer&
4.8 ?arge Lerss Small Dpen %conomies
1) 'he saving)investment anal$sis for large open economies is somewhat more complicated than
the anal$sis for small open economies mainl$ becase ________.
A) there is more information to *eep trac* of for larger economies
B) there are more n*nowns in larger economies
") a larger econom$ ma$ actall$ affect the world econom$
#) all of the above
%) none of the above
Answer& "
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Anal$tical S*ills
1=
"op$right . (/1( Pearson %dcation0 1nc.
() Which of the following is an e!ogenos variable in the model of a small open econom$0 bt an
endogenos variable in the model of a large open econom$5
A) r
w
B) "
") G
#) 9H
%) ,
Answer& A
'opic& 4.2 ?arge verss Small Dpen %conomies
+) Which of the following is tre of a small open econom$0 bt not of a large open econom$5
A) 9et e!ports are nli*el$ to be close to >ero.
B) 'he domestic real interest rate is eBal to the world real interest rate.
") "hanges in desired investment reslt in changes in the trade balance.
#) "hanges in desired investment reslt in changes in actal investment.
%) none of the above
Answer& %
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Reflective 'hin*ing
4) 1f we observe an econom$ in which desired saving has changed0 bt there has been no change
in actal investment0 we ma$ infer that ________.
A) net e!ports have changed
B) actal saving has changed
") the domestic real interest rate has not changed
#) all of the above
%) none of the above
Answer& #
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Anal$tical S*ills
2) 1f we observe an econom$ in which desired saving has changed0 bt there has been no change
in actal investment0 we ma$ infer that ________.
A) this is a closed econom$
B) this is a large econom$
") the trade balance has changed in the same direction as the change in desired saving
#) all of the above
%) none of the above
Answer& "
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Anal$tical S*ills
(/
"op$right . (/1( Pearson %dcation0 1nc.
7) 1f we observe an econom$ in which desired saving has changed0 bt there has been no change
in actal investment0 we ma$ infer that ________.
A) this is a closed econom$
B) this is a large econom$
") the world real interest rate has not changed
#) all of the above
%) none of the above
Answer& "
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Anal$tical S*ills
8) Sppose the world econom$ is divided into two halves. 1n Region A0 all economies e!perience
a decrease in desired saving0 while desired saving is nchanged in Region B. 1f there is open
trade and perfect capital mobilit$ across the two regions0 which of the following is tre5
A) Actal saving in Region B has increased.
B) Actal investment in Region A has increased.
") Region A-s imports from Region B have decreased.
#) all of the above
%) none of the above
Answer& A
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Anal$tical S*ills
:) Sppose the world econom$ is divided into two halves. 1n Region A0 all economies e!perience
a decrease in desired saving0 while desired saving is nchanged in Region B. 1f there is open
trade and perfect capital mobilit$ across the two regions0 which of the following is tre5
A) Actal investment in Region B has increased.
B) 'here is a net capital flow from Region B to Region A.
") Actal investment in Region A has increased.
#) all of the above
%) none of the above
Answer& B
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Anal$tical S*ills
=) An increase in ________ in an open econom$ of an$ si>e leads to ________.
A) desired saving@ an increase in net capital otflows
B) desired investment@ a decrease in net capital otflows
") desired saving@ an increase in the trade balance
#) all of the above
%) none of the above
Answer& #
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Anal$tical S*ills
(1
"op$right . (/1( Pearson %dcation0 1nc.
1/) 1n a large open econom$0 an increase in ________ leads to ________.
A) desired saving@ an increase in the domestic interest rate
B) desired investment@ an decrease in the domestic interest rate
") desired saving@ an increase in desired investment
#) desired saving@ a decrease in actal investment
%) none of the above
Answer& %
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Reflective 'hin*ing
11) 1n a large open econom$ ________.
A) the direction of the shifts in saving and investment on the trade balance are the same as in a
closed econom$
B) the direction of the shifts in saving and investment on net capital flows are the same as in a
closed econom$
") the direction of the effect on the domestic real interest rate and the actal levels of saving and
investment are the same as in a closed econom$
#) all of the above
%) none of the above
Answer& "
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Reflective 'hin*ing
1() 1n a large open econom$ ________.
A) direction of the shifts in saving and investment on the trade balance are the same as for a
small open econom$
B) the direction of the shifts in saving and investment on net capital flows are the same as for a
small open econom$
") the direction of the effect on the domestic real interest rate and the actal levels of saving and
investment are the same as in a closed econom$
#) all of the above
%) none of the above
Answer& #
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Reflective 'hin*ing
((
"op$right . (/1( Pearson %dcation0 1nc.
1+) 1n a large open econom$ ________.
A) direction of the shifts in saving and investment on the trade balance are the same as for a
small open econom$
B) the direction of the shifts in saving and investment on net capital flows are the same as in a
closed econom$
") the direction of the effect on the domestic real interest rate and the actal levels of saving and
investment are the same as in a small open econom$
#) all of the above
%) none of the above
Answer& A
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Reflective 'hin*ing
14) "hina is a large open econom$ with an e!traordinaril$ high saving rate. 1f0 as seems li*el$0
there is a decrease in desired saving in the coming $ears0 what effects shold we e!pect to see on
"hina-s trade balance 6net capital flow)0 domestic real interest rate0 and actal levels of saving
and investment5
Answer& A decrease in desired saving leads to a decrease in the trade balance 6net capital
otflow)0 and an increase in the domestic real interest rate. 'he higher interest rate will prevent
actal saving from falling as mch as it wold otherwise0 bt actal saving does decline. 'he
higher interest rate cases actal investment to decline0 redcing the si>e of the decline in the
trade balance 6net capital otflow).
'opic& 4.2 ?arge verss Small Dpen %conomies
AA"SB& Reflective 'hin*ing
(+
"op$right . (/1( Pearson %dcation0 1nc.