How do automatic stabilizers work quizlet? Question: Due To Automatic Stabilizers, When The Nation’s Total Income Rises, Government Transfer Payments Multiple Choice And Tax Revenues Decrease.
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economy: saving by individuals and firms, called S, and the inflow of financial capital from foreign investors, which is equal to the trade deficit (M – X), or imports minus exports. There are two main sources for the supply of financial capital in the U.S. So both business investment and the federal government can demand (or borrow) the supply of savings. When the federal government runs a budget deficit, it is also borrowing money from investors by selling Treasury bonds. Businesses need to borrow to finance their investments in factories, materials, and personnel. The demand for financial capital (money) represents groups that are borrowing the money. If a country is running a trade deficit, it means money from abroad is entering the country and is considered part of the supply of financial capital. What comprises the supply and demand of financial capital?Ī country’s national savings is the total of its domestic savings by household and companies (private savings) as well as the government (public savings). What is on the supply and demand sides of financial capital? See the following Clear It Up feature for the answer to this question. In a nation’s financial capital market, the quantity of financial capital supplied at any given time must equal the quantity of financial capital demanded for purposes of making investments. The national saving and investment identity provides a useful way to understand the determinants of the trade and current account balance. Understanding the Determinants of the Trade and Current Account Balance This approach views trade balances-and their associated flows of financial capital-in the context of the overall levels of savings and financial investment in the economy. The close connection between trade balances and international flows of savings and investments leads to a macroeconomic analysis. Predict the rising and falling of trade deficits based on a nation’s saving and investment identity.
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Explain how a nation’s balance of trade is determined by that nation’s own level of domestic saving and investment.Identify and calculate supply and demand for financial capital.Explain the determinants of trade and current account balance.By the end of this section, you will be able to: