Author Question: If policymakers in an open economy want to increase the wealth of their citizens, should they seek ... (Read 92 times)

KWilfred · **on:** Jun 30, 2018

If policymakers in an open economy want to increase the wealth of their citizens, should they seek to increase saving, or to increase investment? Explain.

What will be an ideal response?

Question 2

The International Monetary Fund plays the key role of

A) providing deposit insurance for banks in its member nations.
B) acting as lender of last resort for its member countries' central banks.
C) providing loans to member countries to help finance development projects.
D) enforcing international monetary agreements.

rnehls · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Policies to increase investment will increase the domestic capital stock. However, this adds nothing to citizens' wealth, unless saving has increased. If saving is fixed, the increase in investment is financed either by foreigners (net capital inflow) or by a diversion of domestic saving from foreign assets to domestic assets (reduced net capital outflow). Policies to increase saving, if effective, will increase domestic wealth, regardless of the level of domestic investment.

Answer to Question 2

B