What is the difference between foreign direct investment and ...

[ss2343]

What is the difference between foreign direct investment and foreign portfolio investment?
 
  A) Foreign direct investment involves purchases of foreign stock or bonds by individuals or firms, while foreign portfolio investment involves a firm purchasing or building a facility in a foreign country.
  B) Individuals engage in foreign portfolio investment, but only firms can engage in foreign direct investment.
  C) Foreign direct investment can give a low-income country access to funds and technology it would not otherwise have, but foreign portfolio investment does not expand that access.
  D) Foreign direct investment only takes place when governments make official purchases or foreign investments, while foreign portfolio investment takes place when firms, individuals, or the government purchase foreign investments.

Question 2

Use the equations for public and private saving to demonstrate how total saving in the economy equals investment.
 
  What will be an ideal response?

[macagn]

Answer to Question 1

B

Answer to Question 2

Private saving is equal to Y + TR - C - T, and public saving is equal to T - G - TR. Adding private saving and public saving together yields (Y + TR - C - T) + (T - G - TR) = Y - C - G. In a closed economy (with no net exports), Y= C + I + G, so Y - C - G = I, and the sum of public and private saving is equal to investment.

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