Question

In 2016, domestic investment in Japan was 23.4 percent of GDP, and Japanese national saving was 27.2 percent of GDP. What percentage of GDP was Japanese net foreign investment?

Short answer

Japanese net foreign investment was 3.8 percent of GDP in 2016

Step-by-step solution

Understand the relationship

Net foreign investment is the difference between national saving and domestic investment. Mathematically, this can be expressed as: Net Foreign Investment = National Saving - Domestic Investment.

Substitute the known values

In this case, we have that National Saving is 27.2 percent of GDP and Domestic Investment is 23.4 percent of GDP. Substituting these values into our formula, we get: Net Foreign Investment = 27.2 - 23.4.

Calculate the result

Completing the subtraction gives us: Net Foreign Investment = 3.8. Therefore, the Japanese net foreign investment was 3.8 percent of GDP in 2016.

Key concepts

Domestic Investment

Domestic investment refers to the amount of resources a country channels into internal projects that aim to boost its economic growth. Fundamentally, it involves creating capital assets within a nation. This might include building infrastructure such as roads and buildings or investing in technological upgrades.
Such investments are crucial because they can increase the productive capacity of the economy, leading to more goods and services.

• It plays a significant role in improving a country's economic well-being by creating jobs.
• It encourages the development of skills among the working population.
• It leads to an increase in the national income over time.

In the context of Japan, in 2016, domestic investment was 23.4% of GDP. This figure implies that a substantial portion of Japan's economic output was being reinvested into the country's own territory, demonstrating a focus on fostering internal growth. Domestic investment is a key indicator of how much a country is investing in its future productivity and economic health.

National Saving

National saving consists of the total amount saved within a country's economy. It's the sum of both private saving, done by individuals and corporations, and public saving, managed by the government.
National saving is vital because it represents the pool of resources available for investment. The more a country saves, the more it can invest, whether domestically or abroad.

• High national saving rates are often associated with strong economic growth.
• Savings serve as a buffer during economic downturns.
• Saving helps to stabilize the economy by reducing the need to borrow from other nations.

In 2016, Japan's national saving amounted to 27.2% of GDP. This indicates a significant amount of money, relative to its total economic output, was saved. These savings can be used for domestic investment or as seen in the exercise, a portion can be invested in foreign assets, contributing to net foreign investment.

GDP

Gross Domestic Product or GDP is a crucial metric representing the total value of all goods and services produced in a country within a specific time period, usually annually. It acts as a comprehensive scorecard of a country's economic health.
A higher GDP indicates a larger, more productive economy, while a lower GDP suggests a smaller economic base.

• GDP is used to compare the economic performance of different countries or regions.
• It's instrumental in formulating fiscal and monetary policies.
• It serves as a guide for investors deciding where to invest their resources.

Regarding the exercise, GDP serves as the base against which domestic investment and national saving are measured, making it easier to understand how much of the country's economic activity is attributed to these elements. The percentages given for both metrics reflect their proportions of the GDP, which in Japan's case shows a healthy engagement in both investment and saving within its economy.