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Explanation of savings rate decline

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During the 1990s, the age cohort that grew the most rapidly was the 45-54 cohort, which has the highest saving rate. Yet during that same period, the personal saving rate as reported by BEA declined sharply. I'm not sure I understand what factors account for this divergence?

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During the 1990s, the personal saving rate declined even there was a large number of baby boomers who were in their peak saving years. Because the housing and mortgage market conditions of the 1990s with low interest rates, down payments and the ...

Solution Summary

The decline of the personal saving rate in the 90s is uncovered.

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These questions completely baffle me

1. Explain the difference between the real exchange rate and the nominal exchange rate.

2a. If a Japanese car costs 500,000 yen, if a similar Canadian-produced car costs $10,000, and if a dollar can buy 100 yen, what are the nominal and real exchange rates?

2b. Explain the relationship among saving, investment, and net foreign investment.

3. Explain two reasons why purchasing power parity does not hold for all goods and services.

4. What is happening to Canada's real exchange rate in each of the following situations? Explain.

a. The Canadian nominal exchange rate is unchanged, but prices rise faster in Canada then abroad.

b. The Canadian nominal exchange rate is unchanged, but prices rise faster abroad then in Canada.

c. The Canadian nominal exchange rate declines, and prices are unchanged in Canada and abroad.

d. The Canadian nominal exchange rate declines, and prices rise faster abroad then in Canada.

5. "Even though Canada is a small, open economy, trading mostly with the United States, it can still have its own independent monetary policy." True or False. Explain.

6. If Canada's saving is held constant, predict the impact of an increase in net foreign investment on Canada's accumulation of domestic capital.

7. If coke sells for $1.20 Canadian and for .75 pounds in the U.K, determine what the exchange rate should be if purchasing power parity holds.

8. The economits, and international news magazine, regularly collects data on the price of McDonald's Big Mac hamburger in different countries in order to examine the theory of purchasing power parity.
a. Why might the Big Mac be a good product to use for this purpose?
b. Based on the Big Mac data, purchasing power parity appears to hold roughly across some countries, though not across others. Why might the assumptions underlying the theory of purchasing power parity not hold exactly for Big Macs?

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