Question

In: Economics

6. If domestic saving is less than domestic investment, then net exports are ______ and net...

6. If domestic saving is less than domestic investment, then net exports are ______ and net capital outflows are _____.

A. positive; positive

B. positive; negative

C. negative; negative

D. negative; positive

7. In a small, open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to

A. make loans to the domestic government

B. make loans to foreigners

C. repay the national debt

D. repay loans to the federal reserve

8. A trade deficit can be financed in all the following ways except by

A. borrowing from foreigners

B. selling domestic assets to foreigners

C. selling foreign assets owned by domestic residents to foreigners

D. borrowing from domestic lenders

9. In a small, open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ______ and ______ net capital outflow.

A. surplus; negative

B. deficit; positive

C. surplus; positive

D. deficit; negative

10. In a small, open economy, starting from a position of balanced trade, if the government increases domestic purchases, this produces a tendency toward a trade _____ and _____ net capital outflow.

A. deficit; negative

B. surplus; positive

C. deficit; positive

D. surplus; negative

Expert Solution

Answer 6.c. negative, negative

Reason- domestic investment is more than savings, it means inward flow of capital. So net export and capital outward is negative.

Answer 7. B make loans to foreigners

Reason- when domestic savings is more than domestic inveatment, capital flows outward. So extra monet is used to make loans to foreigners.

Answer 8. D. borrowing from domestic lenders.

Reason- trade Deficit means their is not enough domestic savings to there can be no borrowing from domestic lenders.

Answer 9. C. Surplus, positive

Reason- When world interest rate is greater than domestic interest rate, there will be net capital outflow. Trade surplus as export will be more than imports.

Answer 10. A. Deficit, negative

Reason- increase in domestic purchase leads to trade deficit and negative net capital outflow.

Rahul Sunny answered 2 years ago

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