Macro Economics Question:

Problem - The graph below is "National Saving, Investment, and the Trade Balance in the United States, 1960-2006"

a. If U.S. national saving remained at current levels but investment (or gross investment) went down to, say roughly 5% of GDP, the trade balance (or current account) deficit would become a surplus. In your opinion, how would such a development affect long-run U.S. growth rates? How would it affects national wealth in the short-run?

b. If China decided to spend its reserves on importing technology from the U.S. (say, buying U.S. - manufactured machines or IT services), how would you expect it to shown on the graph for the U.S. economy? Show this qualitatively on the graph above by extending the three lines representing I, S, and NX (Canadian students, read: GI, S, and CA) to the right. Explain.