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Page 553
#3
In what way is a college degree a form of capital? Its a form of capital because its something
that you invest in. And when investing in something you are hoping to get something out of it in
return. Making an investment in getting a college degree your hoping to be able to hopefully find
a good paying job with you having that degree.
#5
Does a higher rate of saving lead to higher growth temporarily or indefinitely? A higher rate of
saving lead to a higher growth temporarily because higher saving rate allows more capital to be
accumulated, and additional capital will become smaller over time and growth will slow down.
(page 541) With the saving rate being higher your productivity and income is higher but not to
high growth. And it states the because of diminishing returns, an increase in saving rate leads to
higher growth only for a while.(page 541)
Page 574
#4
What is investment? How is it related to national saving? Investment is spending on capital
equipment, inventories, and structures, including household purchases of new housing.
Investment relates to national saving because national savings is the total income in the economy
that remains after paying for consumption and government purchases.
S=I is the equation for national savings meaning savings equal investments. The equations starts
from the GDP equation Y=C+I+G+NX. NX is zero and subtracting C and G from both sides
will give you the national savings. You then replace the S in place of the C,G, and Y.
Page 714
#2
Why are budget deficits and trade deficits sometimes
called the twin deficits?
Budget deficit is a shortfall of tax revenue from
government spending and trade deficit is an excess
of imports over exports. In 1980 the fiscal policy of
the U.S government changed. The president and
Congress enacted large cuts in taxes, but didnt cut
government spending which resulted in a large
budget deficit. It was predicted that it would lead to
a trade deficit which it did. Because both the trade
deficit and budget deficit happened happen during