Principles of Economics- Mankiw (5th) 645

Principles of Economics- Mankiw (5th) 645 - 1995 1990 1985...

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CHAPTER 29 OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 667 Imports of goods and services exceeded exports. In 1998, the trade deficit was $151 billion, or about 1.8 percent of GDP. Are these trade deficits a problem for the U.S. economy? Most economists believe that they are not a problem in themselves, but perhaps are a symptom of a problem—reduced national saving. Reduced national saving is potentially a problem because it means that the nation is putting away less to provide for its future. Once national saving has fallen, however, there is no reason to de- plore the resulting trade deficits. If national saving fell without inducing a trade deficit, investment in the United States would have to fall. This fall in invest- ment, in turn, would adversely affect the growth in the capital stock, labor Percent of GDP 20 18 16 14 12 10 1960 1965
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Unformatted text preview: 1995 1990 1985 1980 1975 1970 National saving Domestic investment Percent of GDP 4 ± 4 ± 3 ± 2 ± 1 1 2 3 Net foreign investment (a) National Saving and Domestic Investment (as a percentage of GDP) (b) Net Foreign Investment (as a percentage of GDP) 2000 1960 1965 1995 1990 1985 1980 1975 1970 2000 Figure 29-2 N ATIONAL S AVING , D OMESTIC I NVESTMENT , AND N ET F OREIGN I NVESTMENT . Panel (a) shows national saving and domestic investment as a percentage of GDP. Panel (b) shows net foreign investment as a percentage of GDP. You can see from the figure that national saving has been lower since 1980 than it was before 1980. This fall in national saving has been reflected primarily in reduced net foreign investment rather than in reduced domestic investment. S OURCE: U.S. Department of Commerce....
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