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5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports: Y = Also, national saving is the income of the nation that is left after paying for saving (S) is defined as: S = Rearranging the previous equation and solving for Y yields Y = results in the following relationship: S = This is equivalent to S = . Therefore, national Outcomes of a Trade Deficit Exports 0 Y Investment Net Capital Qutflow Imports Net Exports C+I+G Saving 0 . Plugging this into the original equation showing the various components of GDP , since net exports must equal net capital outflow (NCO, also known as net foreign investment). Now suppose that a country is experiencing a trade deficit. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).

5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports: Y = Also, national saving is the income of the nation that is left after paying for saving (S) is defined as: S = Rearranging the previous equation and solving for Y yields Y = results in the following relationship: S = This is equivalent to S = . Therefore, national Outcomes of a Trade Deficit Exports 0 Y Investment Net Capital Qutflow Imports Net Exports C+I+G Saving 0 . Plugging this into the original equation showing the various components of GDP , since net exports must equal net capital outflow (NCO, also known as net foreign investment). Now suppose that a country is experiencing a trade deficit. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter1: Welcome To Economics!
Section: Chapter Questions
Problem 6SCQ: Suppose we extend the circular flow model to add imports and exports. Copy the circular flow diagram...
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5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports: Y Also, national saving is the income of the nation that is left after paying for saving (S) is defined as: S = Rearranging the previous equation and solving for Y yields Y = results in the following relationship: S = This is equivalent to S = . Therefore, national. Outcomes of a Trade Deficit Exports 0 Y Investment Net Capital Outflow Imports Net Exports C+I+G Saving 0 . Plugging this into the original equation showing the various components of GDP , since net exports must equal net capital outflow (NCO, also known as net foreign investment). Now suppose that a country is experiencing a trade deficit. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).
Transcribed Image Text:5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports: Y Also, national saving is the income of the nation that is left after paying for saving (S) is defined as: S = Rearranging the previous equation and solving for Y yields Y = results in the following relationship: S = This is equivalent to S = . Therefore, national. Outcomes of a Trade Deficit Exports 0 Y Investment Net Capital Outflow Imports Net Exports C+I+G Saving 0 . Plugging this into the original equation showing the various components of GDP , since net exports must equal net capital outflow (NCO, also known as net foreign investment). Now suppose that a country is experiencing a trade deficit. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).
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