MGEB06H3 Chapter : Week 7 chapter notes

66 views2 pages

lavenderdonkey6

6 Dec 2010

School

UTSC

Department

Economics for Management Studies

Course

MGEB06H3

Professor

Jack Parkinson

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

5. 1 the international flows of capital and goods. 5. 2 saving and investment in a small open economy. N world interest rate the interest rate prevailing in world financial markets. N foreign lenders demand a risk premium when lending funds to canadian firms and governments if they anticipate that the. N when people refer to the exchange rate between two countries, they usually mean the nominal exchange rate. When the real exchange rate is lower, domestic goods are less expensive relative to foreign goods, and net exports are greater: the trade balance (nx) must equal net foreign investment, which in turn equals saving minus investment. Saving is fixed by the consumption function and fiscal policy; investment is fixed by the investment function and the world interest rate. N at the equilibrium real exchange rate, the supply of canadian dollars available for net foreign investment balances the demand for dollars by foreigners buying canadian net exports (s i = nx)

Related Questions

Since the United States has negative net foreignâ investment, its

A. net capital flow must be negative.

B. domestic saving must be less than its domestic investment.

C. exports must be greater than its imports.

D. domestic investment must be less than its domestic saving.

Expansionary fiscal policy is less effective in an open economy because

A. increases in the money supply will reduce interest rates and lower the value of theâ dollar, reducing aggregate demand.

B. increases in government spending can increase interestâ rates, which increases the value of the dollar and crowds out net exports.

C. increases in government spending will be partly spent on importedâ goods, which do not benefit the domestic economy.

D. increases in taxes reduceâ consumption, which in turn reduces consumption of imports and increases net exports.

When the Federal reserve uses contractionary monetary policy to reduceâ inflation, it

A. sells treasury securities increasing interestâ rates, leading to a stronger dollar that lowers net exports in an open economy.

B. buys treasury securities decreasing interestâ rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.

C. sells treasury securities decreasing interestâ rates, leading to a stronger dollar that lowers domestic investment in a closed economy.

D. buys treasury securities increasing interestâ rates, leading to a weaker dollar that increases net exports in an open economy.

If a country saves more than it investsâ domestically, then its net foreign investment must be (positive, negative, or zero)?

Exports of goods & services	$1000
Imports of goods & services	$800
The net change in assets owned abroad	$590
The net change in foreign-owned assets at home	$400
Unilateral transfers received	$100
Unilateral transfers paid	$200
Investment income paid to foreigners	$300
Investment income received from foreigners	$400
The balance on the capital account	$0