Question

a. Is there an apparent relationship between low savings ratios and the ratio of foreign debt
to GDP? Explain.
b. Can a nation fund its investments at a level higher than that currently provided by its
income? Explain.
c. What are the probable longer-term implications of this type of behavior?
d. Is a high savings ratio a requirement for funding a high ratio of investment to GDP over
the longer term? Explain.

Answer 1

a. There is apparent relationship between low savings ratios and the ratio of foreign debt to GDP, because low saving ratio or high ratio of foreign debt may cause a decrease in GDP and vice versa.

b. A nation could fund its investments at a level higher than that currently provided by its income only using foreign debt.

c. The probable longer-term implication of this type of behavior is the need for future generations to repay this debt.

d. A high savings ratio is not a requirement for funding a high ratio of investment to GDP over the longer term.