Global trade and open economies Flashcards
1
Q
Express Savings in terms of Investment and CA
A
S = I + CA
2
Q
What is the sign for S-I for a country that is a net borrower? Net lender?
A
S-I for net borrowers is negative
S-I for net lenders is positive
3
Q
What happens to the current account if there is a temporary adverse supply shock?
A
People reduce savings at any prevailing interest rate so savings curve shifts up and left. MPKf is unchanged.
CA shrinks so net foreign lending shrinks, country saves less
4
Q
What happens to the current account if MPK f increases?
A
Investment curve shifts out, raising capital stock CA falls and S-I decreases
