Author Question: If desired saving increases in a small open economy, net exports (net capital outflow) rise. What ... (Read 94 times)

Charlie · **on:** Jun 30, 2018

If desired saving increases in a small open economy, net exports (net capital outflow) rise. What happens to net exports if desired saving rises in most of the world's economies at the same time?

What will be an ideal response?

Question 2

Schooling is subsidized in the United States in part

A) so that the golden rule capital level can be reached.
B) because otherwise people would not get educated.
C) because there is a constitutional right to education.
D) because there is a positive externality from schooling.

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

Answer to Question 1

An increase in global saving reduces the world real interest rate, which lowers saving and raises investment in all open economies. This counteracts the initial increase in saving. In some economies, where the initial increase in saving is relatively small, the effect of the reduced interest rate will dominate, so that net exports (net capital outflow) will decline.

Answer to Question 2

D