Why do some economists think a global savings glut contributed to the U.S. running a current account deficit in the 2000s?
What will be an ideal response?
Several developing economies in Asia and Eastern Europe increased their savings as their incomes increased. In addition, Japan increased its savings as many people prepared for retirement. With high savings rates and relatively limited opportunities for investment, funds from these countries flowed into the United States, bidding up the value of the dollar. The high value of the dollar reduced U.S. exports and increased imports, contributing to the current account deficit.
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Because a third of government outlays are linked directly to the CPI, as time passes, the CPI bias means that the government's outlays are
A) larger than needed to keep pace with the cost of living. B) larger than needed to keep pace with the cost of living if the CPI is falling from one year to the next, otherwise the outlays are smaller than needed to keep pace with the cost of living. C) exactly equal to the changes in the cost of living. D) smaller than needed to keep pace with the cost of living. E) smaller than needed to keep pace with the cost of living if the CPI is falling from one year to the next, otherwise the outlays are larger than needed to keep pace with the cost of living.
Which of the following is a feature of a good theory?
A) A good theory does not rely on data. B) A good theory cannot be tested with data. C) A good theory is free from approximations. D) A good theory closely predicts actual behavior.
According to New Keynesian theory, fluctuations in the target interest rate are not a good explanation of the business cycle because the model predicts that
A) consumption is constant. B) labor is countercyclical. C) average labor productivity is countercyclical. D) output is countercyclical.
If an investment project costing $2,800 was expected to yield $1,000 (to be received at year end) for each of the next three years, a profit-maximizing entrepreneur would
a. definitely undertake the project. b. never undertake the project. c. undertake the project if the interest rate was low enough. d. undertake the project if the interest rate exceeded 12 percent.