aplia macroeconomics chapter 18 Attempts: 5.2 Keep the Highest: 5.2/7 5. Saving

ID: 1124691 • Letter: A

Question

aplia macroeconomics chapter 18

Attempts: 5.2 Keep the Highest: 5.2/7 5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and these various components of an economy, you will be asked to recall analysis. d investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between some relationships between aggregate variables that will be useful in your Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C-consumption, I = investment, G-government purchases, X-exports, M- imports, and NX-net exports. Y= Also, national saving is the income of the nation that is left after paying for saving (S) is defined as: Therefore, national ing for Y yields YPlugging this into the original equation showing the various components of GDP results in the following relationship This is equivalent to S = , since net exports must equal net capital outhow (NCO, aso known as net foreign investment). Now suppose that a country is experiencing a trade deficit. Determine the relationships between the entries in the following tabl relationships using the following symbols: > (greater than), s (less than), or - (equal to). le, and enter these

Explanation / Answer

Recall the components that make up GDP. National income (Y ) equals total expenditure on the economy's output of goods and services. Thus, where C= consumption, I= investment, G= government purchases, X= exports, I= imports, and NX= net exports:

Y=C+I+G+NX

Reason:- An economy's gross domestic product ( Y) is made up of four components: consumption, investment, government purchases, and net exports. Therefore Y=C+I+G+NX

Also, national saving is the income of the nation that is left after paying for………Government purchases and consumption………………………………… Therefore, national saving (S ) is defined as:

S=Y-G-C

Reason:-

National saving is the income of the nation that is left after paying for government purchases and consumption. Therefore, S=Y-C-G . Rearranging this for Y yields Y=S+C+G . Plugging this into the original equation for GDP, ( Y) results in:

Y=C+IG+NX

S+C+G=C+I+G+NX

S+C+G-C-G=C+I+NX-C-G

S=I+NX

Rearranging the previous equation and solving for Y yields Y =S+ G+C . Plugging this into the original equation showing the various components of GDP results in the following relationship:

S=I+NX

This is equivalent to S =I+NCO , since net exports must equal net capital outflow ( NCO, also known as net foreign investment)

Now suppose that a country is experiencing a trade surplus. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or =(equal to)

Outcomes of a Trade Deficit

Imports

Export

Net Export

C+I+G

INVESTMENT

Saving

Net Capital Outflow