An increase in ________ in an open economy of any size leads to ...

[shenderson6]

An increase in ________ in an open economy of any size leads to ________.
 
  A) desired saving; an increase in net capital outflows
  B) desired investment; a decrease in net capital outflows
  C) desired saving; an increase in the trade balance
  D) all of the above
  E) none of the above

Question 2

Why is residential investment procyclical?
 
  What will be an ideal response?

[mcni194]

Answer to Question 1

D

Answer to Question 2

Cyclical fluctuations of income and expected income dominate the demand for housing. The user cost of housing is composed of procyclical elements  the real interest rate and the relative price of housing  which would counter the cyclicality of residential investment. But these cost determinants (as well as the procyclical cost of construction) are overwhelmed by expected changes in the relative price of housing. Residential investment is neither deterred by a boom nor revived during a slump. Rather, it thrives during a boom and languishes until the slump has passed.

[shenderson6]

Thank you

[mcni194]

No problemo