Quick%20Quiz%204%21 - Since trade surplus is equal to the...

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© Hadi Salehi Esfahani Quick Quiz 4! Private savings and investment in China have increased by the same percentage of GDP over the past few years, while the government budget deficit as percent of GDP has increased. 1. What must have happened to China's trade surplus as percentage of GDP in recent years? 2. Assume that over the past few years the total saving in the rest of the world has remained unchanged relative to China’s GDP. What must have happened to the total investment in the rest of the world relative to Chinese GDP?
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© Hadi Salehi Esfahani Solution to Quick Quiz 4! 1. What must have happened to China's trade surplus as percentage of GDP in recent years? Recall that Private Savings + Public Savings – I = NX . Diving both sides by GDP gives all variables as percentages of GDP. Saving net of investment as share of GDP has been constant for the private sector, but has declined for the public sector. Therefore, total domestic saving minus investment must have declined.
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Unformatted text preview: Since trade surplus is equal to the domestic (total of public and private) savings minus investment, China's trade surplus as percentage of GDP must have declined. Hadi Salehi Esfahani Solution to Quick Quiz 4! 2. Assume that over the past few years the total saving in the rest of the world has remained unchanged relative to Chinas GDP. What must have happened to the total investment in the rest of the world relative to Chinese GDP? Recall that Domestic Savings + Foreign Savings = I . Since Chinas trade surplus has been declining, the rest of the world has had less foreign savings relative to Chinese GDP. Given that the total domestic savings in the rest of the world have been constant relative to Chinas GDP, total savings available for investment in the rest of the world must have been declining relative to Chinas GDP. Hence, investment in the rest of the world must have...
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This note was uploaded on 01/27/2012 for the course ECON 509 taught by Professor Villamil during the Fall '08 term at University of Illinois, Urbana Champaign.

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Quick%20Quiz%204%21 - Since trade surplus is equal to the...

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