You are given the following information about the open economy of Macroland for

Question

You are given the following information about the open economy of Macroland for 2009: What is the level of investment spending in Macroland in 2009? What is the level of capital inflow for Macroland in 2009? Is Macroland borrowing from foreigners or lending to foreigners? Explain your answer. What is private savings equal to in Macroland in 2009? What is the government budget balance equal to in Macroland in 2009? Does national savings capital inflows equal investment spending for this economy in 2009? Explain your answer. Is the government of Macroland saving or borrowing funds in 2009? Explain your answer.

Explanation / Answer

a)Since GDP = C+I+G+X-M we have 100= 70+ I +20 +10-12 I= 12 b) Net exports are 10-12= -2 so there must be a level of 2 capital inflow since the capital accounts are always the negative of the current accounts. c) Private savings is Y +Tr -T-C or 100+8-15-70= 23 d) Govt budget deficit is Spending +Transfer Payments - Tax revenues 20+8-15= 13 e) Yes, National savings is 23 -13 +2 = 12 So Private savings minus govt deficit (national savings) plus capital inflows equals investment. f) Government is borrowing funds because it is running a deficit of 13.

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