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What is the relationship between a country's savings, its government budget deficit, its domestic investment in physical capital, and its foreign investment?

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Nusrat Fatima
Nusrat FatimaLv10
28 Sep 2019

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Related questions

1. The government saves when it:

A) Has a balanced budget

B) Has a budget deficit.

C) Has a budget surplus.

D) Borrows by selling bonds.

2. In an open economy, total investment spending is equal to:

A) National savings plus the net capital inflow

B) Private savings plus national savings plus net capital inflow.

C) Private savings plus net capital inflow.

D) National savings minus private savings minus net capital inflow.

3. Net capital inflow is equal to:

A) GDP plus exports minus imports.

B) The growth in capital stock minus investment spending.

C) Foreign direct investment.

D) The total inflow of foreign funds minus the total outflow of domestic funds.

Equation (2-2) in chapter 2 tells us that to reduce a current account deficit, a country must increase its private saving, reduce domestic investment or cut its government budget deficit. Nowadays, some people recommend restrictions on imports from China (and other countries) to reduce the American current account deficit. How would higher U.S. barriers to imports affect its private saving, domestic investment and government deficit? Do you agree that import restrictions would necessarily reduce a U.S. current account deficit?

Equation (2-2): Sp = I + CA - Sg = I + CA - (T - G) = I + CA + (G - T).

We learned in Ch.13 that the private saving (Sp ) can be expressed in the following way: Sp = I + CA + (G รขย€ย“ T) This equation tells us that to reduce a current account deficit, a country must increase its private saving, reduce domestic investment, or cut its government budget deficit. Nowadays, some people recommend restrictions on imports from China (and other countries) to reduce the American current account deficit. How would higher U.S. barriers to imports affect its private saving, domestic investment, and government deficit? Do you agree that import restrictions would necessarily reduce a U.S. current account deficit?

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