1. Circle the right answer
If a country has an unexpected low output this year due to flooding, then it should buy/sell assets that can claim future consumption on the international markets to smooth its consumption stream.
If this country has an unexpected high output this year due to good weather, then it should buy / sell assets that can claim future consumption on the international markets to smooth its consumption stream.
2. Circle the right answer
If the international capital markets are perfect, then we should observe that there is high / low correlation between countries’ savings and investment in the world.
If the international capital markets completely shut down, then we should observe that there is high/low correlation between a countries’ savings and investment in the world.