Questions

Define: Gresham's Law.

How is the trade balance tied to net foreign investment?

If I buy a Sony Viao computer, I gain a computer while Mr. Sony gains $2000. What are the three things he can do with my $2000, and how do they affect the trade balance and the capital account (as discussed in class today)?

If a small open economy cuts defense spending, what happens to saving, investment, the trade balance, and the interest rate?

In 2005, former Federal Reserve Governor (and current Federal Reserve Chairman) Ben Bernanke said in a speech: "Over the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global savings glut--which helps to explain both the increase in the U.S. current account deficit [a broad measure of the trade deficit] and the relatively low level of long-term real interest rates in the world today." Is this statement consistent with the models you have learned? Explain.