Answer to Question 3:
A shift in time preference in the direction of future instead of
present consumption in a small country will lead to an increase
in the growth of output and income in that country.
True or false?
The statement is false. Since domestic residents' savings rate
increases, their wealth would be expected to grow at a more rapid
rate. But the growth of domestic output will depend on growth of
the capital stock employed in the domestic economy, as opposed to
the growth of capital stock owned by domestic residents. Since
the domestic investment function does not shift, and the world and
domestic interest rates are unaffected, the level of investment
in the domestic economy will not change. As a result, there will
be no change in the rate of growth of the domestically employed
capital stock, and hence no change in the rate of domestic output
growth.
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