Problem Set 3.pdf

# I found the inflation rate of philippine was not as

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searched for Philippine’s inflation rate, which has the lowest price growth rate. I found the inflation rate of Philippine was not as low as I expected. I think it may because Philippine is a developing country and its economy growth is not as stable as developed countries. There are many other factors influence the price of big mac. Except Philippine, other countries act pretty well in my simple model.

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2. (30 points) For this question you need to access data from the IMF World Economic Outlook Database (available at ). Get data for Investment, Savings, and the Current Account (as a percent of GDP) for the USA, China and one more country (which you are free to choose) for the 1997-2015 period. Plot the time series. Explain the differences between USA, China and the third country in terms of these variables. Make sure to relate your explanation to Equation (19.5) in Chapter 19 and the discussion in Pages 416-418. The third country I chose is Japan, because it is a developed country like the U.S., and it is in Asia, like China. We can see the investment of China is much higher than that of the U.S. and Japan. Moreover, investment of the U.S. and Japan is stable, although they experienced recession during 2008 crisis. However, during 2008 – 2009 period, investment of China even increased. Because China has different economic system than most of advanced economies, the 2008 financial crisis did not do as much damage it did to U.S. and Japan. But two major decrease of investment in 2005 and 2015 are all because of decreased price of stock. This graph does not show that after 2015, investment of China decreased a lot, but still much larger than other two countries. Investment of U.S. and Japan are similar. After crisis, it is increasing, although the growth rate is really small.
The trends of national saving of the U.S. and Japan are similar, although saving of Japan is larger than the U.S. Still, China has the highest national saving. The equation is CA = S + (T – G) - I, which is current account equals to the difference between national saving and investment. Both China and Japan have positive current account balance. Japan has low investment but high national saving, so it also has positive

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current account balance and sometimes exceeds China. Before 2000, saving of China is not so much. After 2000, it increased rapidly. Although investment of China was also increasing, during 2005 – 2007, it decreased a lot. With the increased saving, the decrease of investment resulted in a peak of current account balance of China. Although China has high investment, it also has even higher national saving, so it can always have positive current account balance.
• Fall '08
• NAGY,KRISZTINA

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