Question

Scenario: Open Economy S- nment spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and 36 (Scenario: Open Economy S-l)Look at the scenario Open Economy S- IHow much is private saving? 31 (Scenario: Open Economy S-D) Look at the scenario Open Economy S I What is the government budget balance? 40 (Scenario: Open Economy S- DLook at the scenario Open Economy S- L How much is the net capital inflow? iI (Scenario: Open Economy S-) Look at the scenario Open Economy S- I How much is investment spending? 42: The demand curve for loanable funds slopes: A) upward, since it takes a higher rate of return to get more funds. B) downward, because more potential projects yield 10% than yields%. because higher rates of return are necessary to cover higher costs. upward, downward, because demand is lower when the price to borrow money is higher.

Answer 1

Ans 38. GDP = C + I + G + NX, where C is consumption, G is government spending, and NX is net exports, given by the difference between the exports and imports.

12=8+I+2+(3-1)

Therefore I= 12-8-2-2= 0

No investment means no savings because Savings = Investment

Ans 39. Government budget = Taxes - Government spending

= 0.5 -2.00

= $ -1.5 trillions

Ans 40. Capital is money in this case. Inflow means money coming into the economy. All this money flowing in is capital inflow, as it comes from abroad into the domestic economy.Capital is money in this case. Inflow means money coming into the economy. All this money flowing in is foreign capital inflow, as it comes from abroad into the domestic economy.

by doing net exports we get capital inflows in the economy here net exports = $ 1 trillions

Ans 41. Investment spending = Savings Since private saving is equal to 0 from ques 38

Therefore, Investment spending = 0

Ans 42. The demand curve for loanable funds slope is downward. Because demand is lower when prices of loan borrowings is higher.

As demand curve slopes downward because at a lower interest rate, firms and individuals can borrow money more cheaply. The lower cost of loansencourages a higher quantity of borrowing.