The values below are in billions of dollars. C = $800 I= $100 G=$200 IM= $150 Ex

Question

The values below are in billions of dollars.

C = $800               

I= $100

G=$200

IM= $150

Ex=$100

a. What is output?

b. If taxes (T) are $100 billion, what is private savings?

c. Now assume that imports increase from $150 billion to $200 billion.  Show three different ways that this can change the expanded savings/investment identity.

d. If exports increased from $100 billion to $200 billion how would the savings/investment identity change? (you probably need to think about this in two steps).

Explanation / Answer

A)

Y=C+I+G+EX-IM

Y=800+100+200+100-150

=1050

B)

PRIVATE SAVING = Y-T-C

=1050-100-800

=150

C)

IMPORTS INCRESES BY 50, IT BECOMES $200

THUS, Y BEOMES $ 1000

PRIVATE SAVING BECOMES = 100

D)

EXPORTS INCRESES BY 100, IT BECOMES $200

THUS, Y BEOMES $ 1150

PRIVATE SAVING BECOMES = $250

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