Chapter 4 Mishkin (4)

8/10/2019 Chapter 4 Mishkin (4)

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Macreconomics: Policy and Practice(Mishkin)

Chapter 4 Saving and Investment in Closed and Open Economies

4.1 Relationship Between Saving and Wealth

1) Private saving refers to ________.A) disposable income mins consmption e!penditreB) total e!penditre mins prchases of capital goods") ta!es pls consmption mins income#) consmption e!penditre divided b$ disposable income%) none of the aboveAnswer& A'opic& 4.1 Saving and Wealth

() Private saving refers to ________.A) afterta! income mins consmption e!penditres

B) a flow variable which adds to the stoc* of wealth") the private saving rate times disposable income#) all of the above%) none of the aboveAnswer& #'opic& 4.1 Saving and Wealth

+) ,overnment saving refers to ________.A) ta! revenes mins transfers mins government prchasesB) ta! revenes pls transfers mins government consmption") the saving rate times transfers

#) national pls private saving%) none of the aboveAnswer& A'opic& 4.1 Saving and Wealth

4) ,overnment saving refers to ________.A) ta! revenes mins transfers mins government consmption mins government investmentB) the government-s ta! receipts mins its otla$s") national saving mins private saving#) all of the above%) none of the aboveAnswer& #'opic& 4.1 Saving and Wealth

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"op$right (/1( Pearson %dcation0 nc.


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2) 3ow can the .S. federal government indce increases in the national saving rate5A) b$ lowering the sales ta!B) b$ lev$ing ta!es on individal retirement 6RA) acconts") b$ redcing bdget deficits#) all of the above

%) none of the aboveAnswer& "'opic& 4.1 Saving and WealthAA"SB& Reflective 'hin*ing

7) 3ow can the .S. federal government indce increases in the national saving rate5A) implementing a vale added ta!B) lowering the capital gains ta!") redcing bdget deficits#) all of the above%) none of the aboveAnswer& #'opic& 4.1 Saving and WealthAA"SB& Reflective 'hin*ing

8) 9et capital otflows ________.A) are also *nown as net foreign investmentB) are positive if saving is greater than investment") are also *nown as the trade balance#) all of the above%) none of the aboveAnswer& #'opic& 4.1 Saving and Wealth

:) When a .S. firm sells a good abroad for0 sa$0 1// eros 6assme ;1


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=) When a .S. firm sells a good abroad for0 sa$0 1// eros 6assme ;1.2en. As a reslt0 there is a netcapital otflow from the .S.0 if ________.A) the ban* b$s a .S.made compterB) the ban* b$s a bond issed b$ a .S. compan$") the ban* *eeps the ;1/0/// in a valt#) all of the above%) none of the aboveAnswer& A'opic& 4.1 Saving and WealthAA"SB& Reflective 'hin*ing

1() Which of the following is a correct statement5A) Wealth can increase even if there is no savingB) An increase in net foreign assets alwa$s increases wealth

") ?ow .S. national saving is the principal case of the trade deficits the .S. has rn since the1=:/s#) 'he .S will be a net debtor nation for the foreseeable ftre.%) all of the aboveAnswer& %'opic& 4.1 Saving and WealthAA"SB& Reflective 'hin*ing

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1+) Which of the for government policies to stimlate saving is essential5 'hat is0 which polic$can on its own0 regardless of the other policies0 determine the level of the national saving rate5Answer& Redce bdget deficits. A higher ta! on consmption will increase national saving onl$if the government doesn-t spend all of the increased ta! revene. 'a! incentives that rewardprivate saving directl$0 or encorage private saving b$ increasing the retrn on assets0 will raise

national saving onl$ if government spending is redced to correspond to the decrease in ta!revenes. f nothing is done to promote private saving0 national saving can be raised b$ loweringthe government-s bdget deficit.'opic& 4.1 Saving and WealthAA"SB& Reflective 'hin*ing

14) Wh$ is it important0 for an open econom$0 that investment not be consistentl$ higher thansaving5Answer& When investment is higher than saving0 the difference is a net capital inflow. 'he e!trainvestment that is financed b$ foreigners is an addition to their wealth0 rather than an increase inthe wealth of domestic citi>ens. 'he income from sch investment mst be paid to the foreignowners0 ths is not available to contribte to domestic income and saving. 'he sorce of thecapital inflow is a continal e!cess of imports over e!ports 6negative trade balance). mports arebeing financed throgh the sale of assets to foreigners. t is not so mch investment btconsmption that is nsstainabl$ high@ saving is nsstainabl$ low.'opic& 4.1 Saving and WealthAA"SB& Reflective 'hin*ing

4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$

1) 'he real interest rate ________.A) is the cost of borrowing not adCsted for inflationB) *eeps the mar*et for saving and consmption in eilibrim") describes the real benefit of saving#) all of the above%) none of the aboveAnswer& "'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$

() n the model for desired saving0 autonomousis roghl$ s$non$mos with ________.A) polic$determinedB) endogenos") intended#) inflationadCsted

%) e!ogenosAnswer& %'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$

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+) 'he real interest rate ________.A) is the cost of borrowing adCsted for inflationB) *eeps the mar*et for saving and investment in eilibrim") describes the real benefit of saving#) all of the above

%) none of the aboveAnswer& #'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$

4) "onsmption e!penditres are a fnction of ________.A) the real interest rateB) disposable income") atonomos consmption#) all of the above%) none of the aboveAnswer& #

'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$

2) ncreases in ________ t$picall$ lead to decreases in consmptionA) the interest rateB) disposable income") atonomos consmption#) all of the above%) none of the aboveAnswer& A'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Anal$tical S*ills

7) ncreases in ________ t$picall$ lead to decreases in private saving.A) the interest rateB) disposable income") atonomos consmption#) all of the above%) none of the aboveAnswer& "'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Anal$tical S*ills

8) ncreases in ________ t$picall$ lead to decreases in ________.

A) the interest rate@ savingB) disposable income@ consmption") atonomos consmption@ consmption#) all of the above%) none of the aboveAnswer& %'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Anal$tical S*ills

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:) n the eation S < " 0 which of the following is an endogenousvariable5

A) r

B)

")

#) all of the above%) none of the aboveAnswer& A'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$

=) ________ t$picall$ lead to increases in ________.A) decreases in interest rates @ investmentB) increases in disposable income@ consmption") increases in atonomos investment@ investment#) all of the above%) none of the above

Answer& #'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Anal$tical S*ills

1/) Ceteris paribus0 in a closed econom$0 if consmers become more pessimistic ________.A) atonomos consmption will fallB) investment will fall") saving will increase#) all of the above%) none of the aboveAnswer& #

'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Reflective 'hin*ing

11) Ceteris paribus0 in a closed econom$0 if consmers become more optimistic ________.A) atonomos consmption wold decreaseB) the eilibrim interest rate shold increase") saving shold increase#) all of the above%) none of the aboveAnswer& B'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$

AA"SB& Reflective 'hin*ing

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1() f government cts ta!es ________.A) national saving goes pB) the eilibrim interest rate wold decrease") all of the above#) discretionar$ income goes p

%) none of the aboveAnswer& #'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Reflective 'hin*ing

1+) n the long rn0 if government increases spending ________.A) interest rates decreaseB) it crowds ot private investment") saving increases#) all of the above%) none of the above

Answer& B'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Reflective 'hin*ing

14) n the long rn0 larger bdget deficits lead to ________.A) higher saving levelsB) a fall in investment") lower interest rates#) all of the above%) none of the aboveAnswer& B'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Reflective 'hin*ing

12) A bdget deficit ________.A) ma$ have stimlative effects on economic activit$ in the short rnB) contribtes to lower interest rates in the long rn") is li*el$ to increase ftre prodctive capacit$ in the long rn#) all of the above%) none of the aboveAnswer& A'opic& 4.( Saving0 nvestment0 and ,oods ar*et %ilibrim in a "losed %conom$AA"SB& Reflective 'hin*ing

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4.+ Response to "hanges in Saving and nvestment in a "losed %conom$

1) 'here are no estions for this section.Answer&

4.4 Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$

1) 'he domestic real interest rate 6r) for a given contr$ mst be the same as the world real

interest rate 6rw)________.A) if perfect capital mobilit$ is assmed

B) becase with no barriers to capital flows0 if rwE rdomestic residents wold Cst borrowabroad ptting pward pressres on the domestic rate ntil both rates eal each other

") becase with no barriers to capital flows0 if rwF rdomestic residents wold onl$ lend toforeigners ptting downward pressres on the domestic rate ntil both rates eal each other#) all of the above%) none of the above

Answer& A'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Anal$tical S*ills

() n the model of the open econom$ with perfect capital mobilit$0 ________ is an exogenousvariable.A) GB) "") #) S%) r

Answer& A'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$

+) 'he domestic real interest rate 6r) for a given contr$ mst be the same as the world real

interest rate 6rw)________.A) onl$ if capital is not perfectl$ mobile

B) becase with no barriers to capital flows0 if rwE rdomestic residents wold Cst lend abroadptting pward pressres on the domestic rate ntil both rates eal each other

") becase with no barriers to capital flows0 if rwF rdomestic residents wold onl$ lend toforeigners ptting downward pressres on the domestic rate ntil both rates eal each other#) all of the above

%) none of the aboveAnswer& B'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Anal$tical S*ills

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4) n an econom$ open to international trade ________.A) saving eals investment in eilibrimB) saving is the difference between net e!ports and investment") saving eals investment as long as the econom$ has no e!ports#) saving eals investment as long as 9H


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:) Sppose an econom$ has a ,#P of ;1/ trillion0 and that its national saving rate is (/K. finvestment is (2K of ,#P0 the vale of net e!ports is ________.A) negative ;2// billionB) ;4.2 trillion") negative ;(2/ billion

#) ;( trillion%) none of the aboveAnswer& A'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Anal$tical S*ills

=) Sppose consmption is ;2// billion0 investment is ;1(/ billion0 government prchases eal

;=/ billion0 and net e!ports are negative ;(/ billion. 'he saving rate

G

Sis ________.

A) (/KB) :+.+K

") 14.2K#) +K%) none of the aboveAnswer& "'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Anal$tical S*ills

1/) Sppose ,#P is ;:// billion0 net ta!es eal ;12/ billion0 government prchases are ;17/

billion0 investment is ;1(/ billion0 and net e!ports are ;2 billion. 'he private saving rate

#G

PS

is ________.

A) 1=KB) 17K") (1K#) 1:K%) none of the aboveAnswer& "'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Anal$tical S*ills

11) When an econom$ becomes attractive to global investors0 spar*ing a capital inflow0 onereslt is often a decrease in net e!ports. Wh$5

Answer& 'he capital inflow reflects an increase in desired investment in the econom$. With nochange in desired saving0 and total otpt fi!ed in the short rn0 the increase in investmentspending mst either displace e!ports or increase spending on imports0 casing net e!ports tofall.'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Anal$tical S*ills

1() n an open econom$0 an increase in saving might not case an increase in domesticinvestment. Wh$ not5 #oes that mean that an increase in saving is ndesirable5

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Answer& An increase in saving can affect the domestic real interest rate onl$ b$ changing theworld interest rate. f the world interest rate does not change0 domestic investment is notaffected. ore saving means less consmption0 which redces both imports and domesticdemand for domestic otpt0 so e!ports 6and net e!ports) rise. 'he increase in saving mstcorrespond 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 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Reflective 'hin*ing

1+) f polic$ma*ers in an open econom$ want to increase the wealth of their citi>ens0 shold the$see* to increase saving0 or to increase investment5 %!plain.Answer& Policies to increase investment will increase the domestic capital stoc*. 3owever0 thisadds nothing to citi>ens- wealth0 nless saving has increased. f saving is fi!ed0 the increase ininvestment is financed either b$ foreigners 6net capital inflow) or b$ a diversion of domesticsaving from foreign assets to domestic assets 6redced net capital otflow). Policies to increasesaving0 if effective0 will increase domestic wealth0 regardless of the level of domestic investment.'opic& 4.+ Saving0 nvestment0 and ,oods ar*et %ilibrim in an Dpen %conom$AA"SB& Reflective 'hin*ing

4.2 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$

1) n an econom$ open to international trade where the interest rate at which saving andinvestment wold be eal is ________ the world real interest rate ________.A) above@ a trade srpls ensesB) below@ a trade deficit enses") above@ there is a net capital otflow#) below@ there is a net capital inflow%) none of the aboveAnswer& %'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Anal$tical S*ills

() n an econom$ open to international trade where the interest rate at which saving andinvestment wold be eal is ________ the world real interest rate ________.A) above@ a trade deficit ensesB) 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 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Anal$tical S*ills

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+) f the world real interest rate were to fall below the rate at which domestic saving andinvestment wold be eal ________.A) saving wold be greater than investment so the econom$ wold be rnning a trade deficitB) 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 aboveAnswer& B'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Anal$tical S*ills

Saving-Investment Diagram

4) Based on the Savingnvestment #iagram0 if the world real interest rate is indicated b$ A0 then________.A) the difference between vales , and % measres the trade srplsB) 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 aboveAnswer& A'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$

AA"SB& Anal$tical S*ills

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=) Based on the Savingnvestment #iagram0 the difference between vales 3 and % coldmeasre the net capital inflow0 if ________.A) the difference between vales 3 and # measres the trade srplsB) the domestic real interest rate is indicated b$ A") desired saving has increased

#) desired investment has decreased%) none of the aboveAnswer& "'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Anal$tical S*ills

1/) Based on the Savingnvestment #iagram0 if the domestic real interest rate is indicated b$ B0then ________.A) the vale of net e!ports is >eroB) 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 aboveAnswer& A'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Anal$tical S*ills

11) Based on the Savingnvestment #iagram0 if the world real interest rate declines from A to "0then the changein 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 aboveAnswer& B'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Anal$tical S*ills

1() f there is a decline in world atonomos consmption ________.A) the domestic real interest rate wold fallB) domestic investment wold rise") net e!ports wold fall#) all of the above%) none of the above

Answer& #'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

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1+) f there is a decline in world atonomos consmption ________.A) domestic investment wold declineB) the domestic real interest rate wold fall") net e!ports wold go p#) all of the above

%) none of the aboveAnswer& B'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

14) Which of the following wold lead domestic investment to rise5A) a decline of government spending throghot the worldB) 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 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

12) Which of the following wold lead domestic investment to rise5A) an increase in government spending throghot the worldB) an increase in world ta!es") an increase in world atonomos consmption#) all of the above%) none of the aboveAnswer& B'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

17) f there is a decrease in world ta!es ________.A) domestic investment wold fallB) net e!ports wold increase") domestic interest rates wold go p#) all of the above%) none of the aboveAnswer& #'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

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18) f there is an increase in world ta!es ________.A) domestic investment wold fallB) net e!ports wold increase") the domestic interest rate wold go down#) all of the above

%) none of the aboveAnswer& "'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

1:) f there is a decrease in world investment ________.A) domestic investment wold fallB) 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 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

1=) f there is a decrease in world investment ________.A) domestic saving wold riseB) net e!ports wold decrease") domestic otpt wold go p#) all of the above%) none of the aboveAnswer& B'opic& 4.4 Saving0 nvestment0 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 domesticeconom$0 ________.A) atonomos consmption e!penditres decreaseB) ta!es go p") government spending decreases#) all of the above%) none of the aboveAnswer& #'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

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(1) A small open econom$ wold t$picall$ enCo$ a higher trade balance if0 in the domesticeconom$0 ________.A) atonomos consmption e!penditres increaseB) ta!es decrease") government spending decreases

#) all of the above%) none of the aboveAnswer& "'opic& 4.4 Saving0 nvestment0 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 deficitsB) 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 aboveAnswer& A'opic& 4.4 Saving0 nvestment0 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 aboveAnswer& #'opic& 4.4 Saving0 nvestment0 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 aboveAnswer& A'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Anal$tical S*ills

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(2) n a small open econom$0 goods mar*et eilibrim occrs when desired saving minusdesired investment eals net e!ports. %!plain.Answer& 'he domestic interest rate eals the world interest rate0 regardless of the antities ofsaving and investment. f saving is greater than investment at this interest rate0 the e!cess ofsaving is sed to prchase foreign assets. 'hen0 the mone$ paid to acire foreign assets retrns

to prchase domestic goods0 increasing net e!ports. f saving is lower than investment0 domesticassets are being sold to foreigners0 a capital inflow that enables the prchase of imports0 redcingnet e!ports.'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

(7) f desired saving increases in a small open econom$0 net e!ports 6net capital otflow) rise.What happens to net e!ports if desired saving rises in most of the world-s economies at the sametime5Answer& An increase in global saving redces the world real interest rate0 which lowers savingand raises investment in all open economies. 'his conteracts the initial increase in saving. nsome economies0 where the initial increase in saving is relativel$ small0 the effect of the redcedinterest rate will dominate0 so that net e!ports 6net capital otflow) will decline.'opic& 4.4 Saving0 nvestment0 and the 'rade Balance in a Small Dpen %conom$AA"SB& Reflective 'hin*ing

4.7 Response to "hanges in Saving and nvestment in a Small Dpen %conom$

1) 'here are no estions for this section.Answer&

4.8 ?arge Lerss Small Dpen %conomies

1) 'he savinginvestment anal$sis for large open economies is somewhat more complicated thanthe anal$sis for small open economies mainl$ becase ________.A) there is more information to *eep trac* of for larger economiesB) there are more n*nowns in larger economies") a larger econom$ ma$ actall$ affect the world econom$#) all of the above%) none of the aboveAnswer& "'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Anal$tical S*ills

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() Which of the following is an e!ogenos variable in the model of a small open econom$0 bt anendogenos variable in the model of a large open econom$5

A) rw

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$5A) 9et e!ports are nli*el$ to be close to >ero.B) 'he domestic real interest rate is eal 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 %conomiesAA"SB& Reflective 'hin*ing

4) f we observe an econom$ in which desired saving has changed0 bt there has been no changein actal investment0 we ma$ infer that ________.A) net e!ports have changedB) 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 %conomiesAA"SB& Anal$tical S*ills

2) f we observe an econom$ in which desired saving has changed0 bt there has been no changein 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 aboveAnswer& "'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Anal$tical S*ills

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7) f we observe an econom$ in which desired saving has changed0 bt there has been no changein 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 aboveAnswer& "'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Anal$tical S*ills

8) Sppose the world econom$ is divided into two halves. n Region A0 all economies e!periencea decrease in desired saving0 while desired saving is nchanged in Region B. f there is opentrade and perfect capital mobilit$ across the two regions0 which of the following is tre5A) 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 aboveAnswer& A'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Anal$tical S*ills

:) Sppose the world econom$ is divided into two halves. n Region A0 all economies e!periencea decrease in desired saving0 while desired saving is nchanged in Region B. f there is opentrade and perfect capital mobilit$ across the two regions0 which of the following is tre5A) 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 aboveAnswer& B'opic& 4.2 ?arge verss Small Dpen %conomiesAA"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 otflowsB) desired investment@ a decrease in net capital otflows") desired saving@ an increase in the trade balance

#) all of the above%) none of the aboveAnswer& #'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Anal$tical S*ills

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1/) n a large open econom$0 an increase in ________ leads to ________.A) desired saving@ an increase in the domestic interest rateB) 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 aboveAnswer& %'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Reflective 'hin*ing

11) n a large open econom$ ________.A) the direction of the shifts in saving and investment on the trade balance are the same as in aclosed econom$B) the direction of the shifts in saving and investment on net capital flows are the same as in aclosed econom$") 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 aboveAnswer& "'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Reflective 'hin*ing

1() n a large open econom$ ________.A) direction of the shifts in saving and investment on the trade balance are the same as for asmall open econom$B) the direction of the shifts in saving and investment on net capital flows are the same as for asmall open econom$") the direction of the effect on the domestic real interest rate and the actal levels of saving andinvestment are the same as in a closed econom$#) all of the above%) none of the aboveAnswer& #'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Reflective 'hin*ing

((



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1+) n a large open econom$ ________.A) direction of the shifts in saving and investment on the trade balance are the same as for asmall open econom$B) the direction of the shifts in saving and investment on net capital flows are the same as in aclosed econom$

") the direction of the effect on the domestic real interest rate and the actal levels of saving andinvestment are the same as in a small open econom$#) all of the above%) none of the aboveAnswer& A'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Reflective 'hin*ing

14) "hina is a large open econom$ with an e!traordinaril$ high saving rate. f0 as seems li*el$0there 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 investment5Answer& A decrease in desired saving leads to a decrease in the trade balance 6net capitalotflow)0 and an increase in the domestic real interest rate. 'he higher interest rate will preventactal saving from falling as mch as it wold otherwise0 bt actal saving does decline. 'hehigher interest rate cases actal investment to decline0 redcing the si>e of the decline in thetrade balance 6net capital otflow).'opic& 4.2 ?arge verss Small Dpen %conomiesAA"SB& Reflective 'hin*ing

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Chapter 4 Mishkin (4)

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