Question

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?

Homework Answers

Answer #1

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.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Exports, Imports, Net exports. Trade surplus, trade deficit, trade balance. What factors influence a country’s...
1. Exports, Imports, Net exports. Trade surplus, trade deficit, trade balance. What factors influence a country’s exports? Imports? Net exports(NX)? 2. What is a net capital outflow (NCO)? What factors influence net capital outflow? What can you say about NCO and Net exports? What does national saving equal to in open economy? (S=I+NCO) 3. Define Nominal Exchange rate and real exchange rate. What does it mean when a currency appreciates? How do you calculate real exchange rate and what does...
Question 13 1. Suppose that goods in a foreign country seem cheap from a domestic country...
Question 13 1. Suppose that goods in a foreign country seem cheap from a domestic country perspective. This means that, a. the domestic currency is relatively weak and the real exchange rate for the domestic currency is less than 1 b. the domestic currency is relatively weak and the real exchange rate for the domestic currency is greater than 1 c. the domestic currency is relatively strong and the real exchange rate for the domestic currency is less than 1...
Y = C + I + G + NX Y = 18,500; G = 4,000; T...
Y = C + I + G + NX Y = 18,500; G = 4,000; T = 2,000 C = 750 + 3/4 (Y - T) I = 1,000 - 50r CF = 750 - 25r NX = 1,825 - 150ϵϵ The world interest rate increases to r* = 10. Solve for consumption, private and public saving, national saving, investment, the trade balance, the net capital outflow (net foreign investment), the domestic real interest rate, and the real exchange rate....
Suppose that the world interest rate rises. A. If the elasticity of nantional saving in relation...
Suppose that the world interest rate rises. A. If the elasticity of nantional saving in relation to the world interest rate is very high, will this rise in the world interest rate have a large or small effect on America's net capital outflow? B. If the elasticity of America's exports in relation to the real exchange rate is very low, will this rise in the world interest rate have a large or small effect on America's real exchange rate?
1. Which of the following best describes the effects of an increase in real interest rates...
1. Which of the following best describes the effects of an increase in real interest rates in Canada? a. It discourages both Canadian and foreign residents from buying Canadian assets. b. It encourages both Canadian and foreign residents to buy Canadian assets. c. It encourages Canadian residents to buy Canadian assets, but discourages foreign residents from buying Canadian assets. d. It encourages foreign residents to buy Canadian assets, but discourages Canadian residents from buying Canadian assets. ____     2.   Which of the following...
What would happen to the trade balance and the net capital outflows of China should Chinese...
What would happen to the trade balance and the net capital outflows of China should Chinese domestic saving fall?
Suppose that US mutual funds suddenly decide to invest more in Canada. a. What happens to...
Suppose that US mutual funds suddenly decide to invest more in Canada. a. What happens to Canadian net captial outflow, Canadian saving and Canadian domestic investment? (6%) b. What is the long-run effect on the Canadian capital stock? (2%) c. How will this change in the capital stock affect the Canadian labour market? Does this US investment in Canada make Canadian workers better off or worse off? (7%)
ECO - 252 - Macroeconomics. 7. True/False statements. Simply state if the statement is true or...
ECO - 252 - Macroeconomics. 7. True/False statements. Simply state if the statement is true or false. No explanation required. a. An increase in U.S. net exports decreases the supply of dollars. b. If net exports are negative, foreign assets bought by Americans are greater than American assets bought by foreigners. c. A decrease in a country's real interest rate reduces net capital outflow. d. If a U.S. resident buys a foreign bond, this action is included in the U.S....
in a small open economy with full employment, consumption depends only on disposable income. National saving...
in a small open economy with full employment, consumption depends only on disposable income. National saving is 300, investment is given by I = 400 – 20r, where r is the real interest rate measured in percentage, and the world real interest rate is 10 percent. Compute the investment, trade balance, and net capital outflow.
In 1998, the Russian government defaulted on its debt payments,leading investors worldwide to raise the preference...
In 1998, the Russian government defaulted on its debt payments,leading investors worldwide to raise the preference for U.S government bonds, which are considered very safe. What effect do you think this flight to safety had on the U.S economy? Be sure to note the impact on national saving, domestic investment, net foreign investment, the interest rate, the exchange rate, and the trade balance