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9 December, 13:22

Assume the economy is open to capital inflows and outflows and therefore net capital inflow equals imports (IM) minus exports (X). Answer each of the following questions.

a. X = $125 million

IM = $80 million

Budget balance = - $200 million

I = $350 million Calculate private savings.

b. X = $85 million

IM = $135 million

Private savings = $250 million

Calculate I.

c. X = $60 million

IM = $95 million

Private savings = $325 million

I = $300 million

Calculate the budget balance.

d. Private savings = $325 million

I = $400 million

Budget balance = $10 million

Calculate IM - X.

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Answers (1)
  1. 9 December, 13:46
    0
    A) I = Private savings + Budget balance + (IM - X). We use this to solve for the missing variable of each problem.

    $350 million = Private savings - $200 million + ($80 million - $125 million)

    so, private savings = $595 million

    B) I = $250 million + $100 million + ($135 million - $85 million)

    so, I - $400 million

    C) $300 million - $325 million + Budget balance + ($95million - $60million)

    so, the budget balance = - $60 million

    D) $400 million = $325 million + $10 million + (IM - X)

    So, capital inflow (IM - X) = $65 million
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