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29 December, 08:57

Scenario: Open Economy S = I In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. Look at the scenario Open Economy S = I. How much is investment spending? a. $3 trillion b. $2 trillion c. $3.5 trillion d. $4 trillion

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  1. 29 December, 09:27
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    D. $4 trillion

    Explanation:

    Given that

    GDP = 12 trillion

    C = 8 trillion

    G = 2 trillion

    T = 0.5 trillion

    X = 1 trillion

    M = 3 trillion

    Recall that

    I = national savings + (M - X)

    And national savings = GDP - C - G

    Thus

    National savings = 12 - 8 - 2

    = 2 trillion

    Thus,

    I = 2 + (3 - 1)

    I = 2 + 2

    I = 4 trillion.

    Therefore, investment spending is $4 trillion
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Home » Business » Scenario: Open Economy S = I In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion.
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