Scenario 4: The following table contains data for a hypothetical open economy. T

Question

Scenario 4: The following table contains data for a hypothetical open economy. The amount of investment spending is unknown.


GDP
$8,000

Consumption (C)
$4,000

Government spending (G)
$1,100

Tax (T)
$1,300

Transfer payment (TR)
$500

Export (X)
$500

Import (IM)
$350



Question 4.1: What is the level of private savings?
Question 4.2: What is the level of government savings?
Question 4.3: What is the status of the budget balance?
Question 4.4: What is the level of national savings?
Question 4.5: According to the savings-investment spending identity for an open economy, what is the amount of investment spending in this economy?

Explanation / Answer

Q 4.1 In macroeconomic we know GDP = private consumption gross investment + government spending + (exports - imports) We also know hoseholds have the option to consume or save therefore, the amount of private savings is equal to the amount of private consumption. So it is 4000 Q4.2 Likewise for the same reasoning in question 1, we can infer government savings is 1100 in this economy. Q4.3 we can see our net exporst are larger than imports and the status of our budget is positive. Notice GDP = private consumption gross investment + government spending + (exports - imports) we have 8000>4000+(1300+500)+1100+(500-350) 8000>7050 therefore, in our made up economy we have a debit of 950. Q4.4 National savings is equal to consumer saving + government savings 4000+1100=5100 Q4.5 The amount of investment spending in this economy is 5450. This is the amount of national savings from Q4.4 + spending on imports. 5100+350=5450 Hope this helps

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