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Suppose that Canadians decided to save a smaller fraction of their incomes. What would be the...

Suppose that Canadians decided to save a smaller fraction of their incomes. What would be the effect on saving, domestic investment, net capital outflow, the real exchange rate, and the trade balance?

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Canadians decided to save a smaller fraction of their incomes.This reduces private savings and so national saving declines. Supply curve of loanable funds shifts left. Rate of interest rises. Savings and investment are reduced domestically. This causes net capital outflow to fall. Real exchange rate rises appreciates) as supply of domestic currency falls and so net exports decline. Trade deficit is widened/increased.

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