QUESTION 5 If a nation\'s income exceeds its spending, then savings will be less

Question

QUESTION 5

If a nation's income exceeds its spending, then

savings will be less than domestic investment

the nation must run a current account deficit

the balance of payments will have deficits for the next two years

the nation must run a capital account deficit

5 points   

QUESTION 6

The US savings deficit can be attributed, in part, to

the growing US budget deficit

high real interest rates abroad

low American investment in plant and equipment

rising US taxes on capital accumulation

5 points   

QUESTION 7

In order to reduce its current account deficit, the United States must do which of the following?

reduce the federal budget deficit

lower national product relative to national spending

reduce savings relative to domestic investment

reduce the federal budget surplus

5 points   

QUESTION 8

In a freely floating exchange rate system, if the capital account surplus for the U.S. rises, what will most likely happen to the real value of the dollar?

it will decline

it will rise

there is no impact on the dollar

the IMF will step in to adjust rising exchange rates

savings will be less than domestic investment

the nation must run a current account deficit

the balance of payments will have deficits for the next two years

the nation must run a capital account deficit

Explanation / Answer

Answer 5: the nation must run a capital account deficit. As nation’s income exceeds its spending,then savings will exceed domestic investment yielding surplus capital. The surplus capital must be invested in foreign investment.Net foreign investment equals the nation’s net public and private capital outflows plus the increase in official reserves.

Answer6: the growing US budget deficit. As US saving deficit attributes to increasing budgetary imbalances. Private and public savings deficit impacts the budget deficits.

Answer7: reduce the federal budget deficit.

Answer8: it will rise. As capital account surplus will show positive impact on the value of US income which in turn will increase the value of dollar in the world

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