In a small open economy, goods market equilibrium occurs when desired saving minus desired investment equals net exports. Explain
What will be an ideal response?
The domestic interest rate equals the world interest rate, regardless of the quantities of saving and investment. If saving is greater than investment at this interest rate, the excess of saving is used to purchase foreign assets. Then, the money paid to acquire foreign assets returns to purchase domestic goods, increasing net exports. If saving is lower than investment, domestic assets are being sold to foreigners, a capital inflow that enables the purchase of imports, reducing net exports.
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At the short-run break-even price, the firm
A) is earning positive economic profits. B) is earning negative economic profits. C) is making a normal rate of return on its capital investment. D) may be earning a positive or negative economic profit depending upon costs.
If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:
A. save is three-fifths. B. consume is one-half. C. consume is three-fifths. D. consume is two-fifths.