Question: Also during the 1990s, the ratio of capital spending to GDP rose, while the personal saving rate declined almost to zero. The profit ratio did not rise very much; hence almost the entire increase in saving came from the foreign and government saving. This implies that if the trade deficit had not expanded, and if the Federal budget position had not shifted from deficit to surplus, there would have been no investment boom.
(A) Explain why you agree or disagree with this last sentence.
(B) If the government budget had remained in deficit, what do you think would have happened to the personal saving rate?
(C) Suppose the P/E ratio of the stock market had remained constant during the 1990s instead of increasing, which means stock prices would have risen at the same rate as GDP. In that case, what do you think would have happened to investment, personal saving, foreign saving, and government saving?