For parts of this question, it is useful to read Investment and Saving in Globalized Financial Markets in the Additional Topics section of this book's MyEconLab.
a. Suppose Canada were a closed economy, with no trade in financial capital with the rest of the world. In such a world, explain why a government that wanted to encourage domestic saving could achieve this outcome either by designing a policy to increase saving or by designing a policy to increase investment.
b. Now suppose financial capital is easily tradable between countries. What determines the Canadian real interest rate in such a setting?
c. Explain why the government objective to increase saving now requires a policy aimed directly at increasing saving (and not investment).