What is the key macroeconomic difference between open economies & closed economies? Write the national income accounts identity for an open economy? Rewrite the national income accounts identity, solving for net exports. What do positive net exports imply and what do negative net exports imply abou...
Econ 402 Final || with 100% Correct Answers.
What is the key macroeconomic difference between open economies & closed economies? Write
the national income accounts identity for an open economy? Rewrite the national income
accounts identity, solving for net exports. What do positive net exports imply and what do
negative net exports imply about a country's output versus its domestic spending? correct
answers key difference is that in an open economy a country spending in any given year does not
equal its output of goods and services a country can spend more than it produces by borrowing
from abroad
Y=C+I+G+X-IM.
Y=C+I+G+NX.
If a country's output exceeds its domestic spending it exports the difference and net exports are
positive for the country's output fall short of its domestic spending it imports the difference in the
exports are negative.
Write the national income accounts identity in terms of saving, S, investment, I, and net exports
(NX). An economy's net exports must always equal the difference between what two things?
What is another name for net exports? What is domestic saving minus domestic investment, S - I,
called (give both terms)? If net capital outflow is positive, is the economy relative to the rest of
the world a net lender or net borrower? If net capital outflow is negative, is the economy relative
to the rest of the world a net lender or net borrower? correct answers S=I+NX, NX=S-I, I=NX-S
savings minus investment also called net capital outflow
Trade balance
net capital outflow and net foreign investment
net lender
net borrower
If a country has a trade surplus is it a net lender or net borrower in world financial markets? A
trade deficit? What are two sides of the same coin? In the nation of Essos with national saving, S,
greater than domestic investment, I, how is the surplus saving used? Why does the other nation,
Westeros, need them? The international flow of capital can take what two forms? correct
answers it is a net lender
net borrower
the flow of funds to finance capital accumulation and the international flow of goods and
services.
, the surplus gets lended out to westeros
because in westeros investment is high
foreigners buying domestic assets and foreign loans
What does the assumption of a small open economy and the assumption of perfect capital
mobility imply? What must the interest rate in the small open economy equal? What determines
the world real interest rate? correct answers it implies that because the economy has little effect
on the world economy it takes at the world interest rate.
the world interest rate
the equilibrium of world saving and world investment
What three assumptions does the model take from the classical model? Write the national income
accounting identity solving for net exports. Write the equation in terms of both Y, C, I, & G, and
in terms of S & I. In the equation denote what variable(s) is/are fixed and substitute the world
real interest rate for the interest rate. correct answers Economies output is fixed by the factors of
production, consumption is positively related to disposable income, and investment is negatively
related to real interest.
How does an increase in government purchases affect national saving, investment, the interest
rate, net exports, and net capital outflows? correct answers an increase in government purchases
decreases national; saving causing a trade deficit because the gov is borrowing more money
meaning NX<0
How does a decrease in taxes affect national saving, investment, the interest rate, net exports,
and net capital outflows? correct answers it causes savings to shift down and in turn causes
NX<0 meaning we would become a net borrower
How does an increase in government purchases by foreign governments which are a large part of
the world economy affect national saving, investment, the interest rate, net exports, and net
capital outflows? correct answers it would decrease world saving causing the world interest rate
to rise, reduces investment in the small economy causing a trade surplus
How does a decrease in business regulation that encourages investment affect national saving,
investment, the interest rate, net exports, and net capital outflows? Be able to graph this as we
will do it in class. correct answers it causes national saving to stay the same investment goes up
the interest rate stays the same and would cause a net trade deficits meaning we would become a
borrower
What policies tend to cause a trade deficit & what policies tend to cause a trade surplus? When
might a trade deficit represent a problem & when might it represent a sign of economic
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