Asked by Charles Johnson on May 23, 2024
Verified
According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.
Government Budget Deficit
The financial situation in which a government's expenditures exceed its revenues, leading to borrowing or reducing reserves.
Domestic Investment
The total capital expenditures for the acquisition, maintenance, or improvement of physical assets within a country's borders.
Net Capital Outflow
The difference between the domestic country's sale of assets to foreigners and the domestic purchases of foreign assets over a given period, usually indicating how much a country is investing abroad compared to foreign investments in the country.
- Identify the roles of government budget deficits and surpluses in the open-economy macroeconomic model.
Verified Answer
LK
Lovepreet Kaur SidhuMay 25, 2024
Final Answer :
True
Explanation :
A decrease in the U.S. government budget deficit reduces national saving and interest rates, which encourages more domestic investment and increases net capital outflow as domestic funds are more available for foreign investment.
Learning Objectives
- Identify the roles of government budget deficits and surpluses in the open-economy macroeconomic model.