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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 China’s 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 China’s 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 China’s GDP, total savings available for investment in the rest of the world must have been declining relative to China’s GDP. • Hence, investment in the rest of the world must have...
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- Fall '08
- Deficit, Gdp, Capital accumulation, Saving