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Chapter 18: Problem 1

In a country, private savings equals \(600,\) the government budget surplus equals \(200,\) and the trade surplus equals 100. What is the level of private investment in this economy?

Short Answer

Expert verified
The level of private investment (I) in this economy is $900.

Step by step solution

01

Write the identity

The macroeconomic identity that relates private savings, budget surplus, trade surplus, and private investment is given by: \(S + BS + TS = I\)
02

Input given values

Now, we can input the given values for the private savings (S = \(600), the government budget surplus (BS = \)200), and the trade surplus (TS = $100) into the identity: \((600) + (200) + (100) = I\)
03

Calculate Private Investment

By adding the values, we can calculate the level of private investment in the economy: \(600 + 200 + 100 = 900\) So, the level of private investment (I) in this economy is $900.

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Most popular questions from this chapter

In the late 1990 s, the U.S. government moved from a budget deficit to a budget surplus and the trade deficit in the U.S. economy grew substantially. Using the national saving and investment identity, what can you say about the direction in which saving and/or investment must have changed in this economy?

Under what conditions will a larger budget deficit cause a trade deficit?

Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of \(50,\) a trade deficit of \(20,\) private savings of \(130,\) and investment of \(100 .\) If the budget deficit rises to \(70,\) how are the other terms in the national saving and investment identity affected?

Under what condition would crowding out not inhibit long-run economic growth? Under what condition would crowding out impede long-run economic growth?

Based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?
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