An open economy whose national saving (S) exceeds its investment (I) experiences a trade surplus. True...

An open economy whose national saving (S) exceeds its investment (I) experiences a trade surplus. True or False?

Solutions

Expert Solution

In open economy equilibrium point following holds.

S = I + NX

Where 'S' is the national saving

'I' is the investment

'NX' is net export.

S = I + NX

NX = S - I

If Saving (S) exceeds Investment (I), then S-I would be positive.

It means NX (Net export ) is positive.

Positive net export implies trade surplus (because export is higher than import if net export is positive)

Answer: TRUE

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Write the equation for national saving for a small open economy. If national saving is held...

Write the equation for national saving for a small open economy. If national saving is held constant, what happens to domestic investment if NCO decreases? Why? Suppose the nominal exchange rate is 100 yen per dollar. Further, suppose the price of a baseball glove in Canada is $50 and the price of a baseball glove in Japan is 7500 yen. What is the real exchange rate between Japan and Canada in terms of baseball gloves? Is there a profit opportunity...

For an economy, if its national saving is greater than its domestic investment, then which of...

For an economy, if its national saving is greater than its domestic investment, then which of the following is true? A) this economy must have a current account surplus. B) this economy must have a financial account surplus. C) this economy’s government budget must be in surplus. D) all of the above If an economy’s current account is in deficit, then it is true that __________. A) its national saving finances the purchase of domestic goods by foreign countries B)...

According to the Classical small open economy model, what happens to domestic national saving, investment, the...

According to the Classical small open economy model, what happens to domestic national saving, investment, the trade balance, and the real exchange rate in response to each of the following events? Draw a loanable funds market diagram and a net exports diagram to illustrate your answer in each case. (For these diagrams, let’s assume that the country starts out running a current account surplus and capital account deficit, as in the examples in class.) (a) The introduction of a stylish...

6. In a small open economy, desired national saving, S d = $10 billion + ($100...

6. In a small open economy, desired national saving, S d = $10 billion + ($100 billion)rw ; desired investment, Id =$15 billion-($100 billion)rw ; output, Y= $50 billion; government purchases, G = $10billion; world real interest rate, rw =0.03 a. Find the economy’s national saving, investment, current account surplus, net exports, desire consumption, and adsorption. b. Owing to a technological innovation that increases future productivity, the country’s desired investment rises by $2 billon at each level of the world...

Initially, there is a trade surplus in an open economy with a perfect capital mobility and...

Initially, there is a trade surplus in an open economy with a perfect capital mobility and a world interest rate rw. Suppose the government reduces her expenditure. How does the reduction in the government expenditure affect net capital outflow, exchange rate, and net exports? Answer with the aid of the supply-and-demand diagram for the foreign-currency exchange market.

If a small open economy reduces defense spending, what happens to saving, investment, the trade balance,...

If a small open economy reduces defense spending, what happens to saving, investment, the trade balance, the world interest rate, and the exchange rate? Assume that initially saving exceeds investment. I want to see two sets of graphs illustrating the effects, Make sure you explain what is going on!

16. In an open economy, if a country has a trade surplus, which is NOT correct...

16. In an open economy, if a country has a trade surplus, which is NOT correct ____? A. Exports > Imports. B. Y < C + I + G C. Saving > Investment D. Net capital outflow > 0

1) Consider a small, open economy starting off with balanced trade. If the economy experiences an...

1) Consider a small, open economy starting off with balanced trade. If the economy experiences an increase in demand for economic investment, the result will be _____________ in the world real interest rate and the introduction of a trade _________. a. no change; deficit b. an increase; surplus c. no change; surplus d. a decrease; deficit 2) Consider a small, open economy that starts off in balanced trade. If its government raises taxes for fiscal policy, we expect to see...

in an open economy national saving equals domestic invest,ent plus net capital outflow. true or false

In a large open economy ________. the effect of shifts in saving and investment on net...

In a large open economy ________. the effect of shifts in saving and investment on net capital flows are in the same direction as in a closed economy the effect of shifts in saving and investment on the domestic real interest rate and the actual levels of saving and investment are in the same direction as in a closed economy the effect of shifts in saving and investment on the trade balance are in the same direction as in a...

Subjects