2. The economy of Delphinia is characterized by the following: Indicator Private

Question

2. The economy of Delphinia is characterized by the following: Indicator Private consumption spending Government spending Tax revenue Transfers Size $400 billion $176 billion $206 billion $20 billion 1 Private Investment spending Exports Imports $140 billiorn $20 billion $34 billion a. Using the information in the table above, calculate the following: i. ii. iii. iv. v. vi. GDP Private savings Budget balance - indicate whether the government runs surplus or deficit National savings Net capital inflow Derive the Savings-Investment Spending (SI) Identity for the economy of Delphinia Draw the Loanable Market Model (LMM) if the current interest rate is 3.5% and the equilibrium quantity of loanable funds is $140 billion. What is the relationship between the S-I identity and the LMM? The government decided to invest $20 billion into several infrastructure projects. b. c. i. ii. iii. iv. Where can the government get the necessary $20 billion? Explain how this will affect the budget balance. Show this change on the LMM graph from b. Explain how this will impact the equilibrium interest rate and the private investment spending (what is the name of this effect?).

Explanation / Answer

2.

(i) GDP= Consumption + government spending + investment spending + export - import +

=400+140+176 +20-34

=$702 billion

(ii)

Private saving= private investment

= $140 billion

(iii) Budget balance = Tax revenue - government expenditure - government transfer

=206 -176 -20

=$10 billions

Surplus budget= public saving =$10 billions

(iv) National saving = private saving + public saving

=140+ 10

=$150

(v)

Net capital inflow = export - import

=20-34

=$14 billions.

#According to Chegg guidelines, i need to solve first four part.

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