Stumper 3 Assignment Example | Topics and Well Written Essays - 250 words

Stumper 3 - Assignment Example For instance, when a country is faced by the threat of wars, it compels that the government purchase some military equipments which consequently induces the need for bonds to settle the expenditures. Since the public savings is one of the major sources of the loanable funds market, its deterioration would cause a negative impact on the funds. When we have government spending surpassing the tax collection, it means there is minimal government savings and this leads to decrease in funds as it has to fund what tax is not able to cover (Mankiw 2011). However, when the governments refund the loanable funds market with significant profits, it contributes to its growth. It is clear from the case study that capital inflows and capital outflows are the two parts of the international capital account. The capital inflow provides loanable funds which are exchanged with financial assets (Mankiw 2011). This indicates that when a country is suffering from national dept or budget deficits, it benefits the international finance whereby it allows for financial exchanges. Capital outflow is a direct opposite of