Given the following information about the closed economy of Brittany, what is the level of investment spending and private savings, and what is the budget balance? What is the relationship among the three? Is national savings equal to investment spending? There are no government transfers. GAP= $1,000 million $50 million $850 million $100 million Investment spending is $50 million. The budget balance is $50 million. Private savings is $100 million. Investment spending is equal to national savings in a closed economy. . Given the following information about the open economy of Regalia, what is the level of investment spending and private savings, and what are the budget balance and capital inflow? What is the relationship among the four? There are no government transfers. (Hint : capital inflow. NFG the value of imports (IM) minus the value of exports GAP= $1,000 million & $100 million C=$850 million X=$100 million T=$50 million IM=$ 125 million Investment spending is $75 million. Private savings is $100 million. The budget balance is $50 million.

The capital inflow is $25 million. The relationship among the four is investment spending must equal he sum of private savings, capital inflow and the budget balance. 3. The accompanying table shows the percentage of GAP accounted for by private savings, investment spending, and capital inflow in the economies of Capstans and Marsupial. Capstans is currently experiencing a net capital inflow and Marsupial, a net capital outflow. What is the budget balance (as a percentage of GAP) in both countries? Are Capstans and Marshall running a budget deficit or surplus?

Capstans Marsupial Investment spending as a percentage of GAP 20% 20% Private savings as a percentage of GAP 10 25 Capital inflow as a percentage of GAP 5 -2 In both countries investment spending as a % of GAP must be equal to the sum of the budget balance, capital inflow and private savings as a % of GAP. In Capstans, the budget balance is 5% of GAP and the government is running a budget surplus equal to 5% of GAP. In Marsupial, the budget balance is -3% of GAP and the government is running a budget deficit equal to 3% of GAP 4.

Assume the economy is open to capital inflows and that capital inflows equals imports (IM) minus exports (X). Answer each of the following questions. Private Savings + Budget Balance+ (IM-X) a. X= $125 million $80 million Budget balance= -$200 million 1=$350 million – Calculate private savings. 350 million??Private Savings-$million +($million-$125 million) Private savings is equal to $595 million b X?? $85 million IM?? $135 million Budget balance??S 00 million Private savings = $million??calculate l. $million +$million +( $135 million- $85 $400 million c.

X=$60 million $95 million Private savings=$325 million 1=$300 million– calculate the budget balance. $300 million=$325 million+ buccaneered+ ($95 million-$60 million) Budget balance equals -$million. D. Private savings= $325 million $400 million Budget balance=$10 million?? lactate IM-X $400 million=$325 million+ $10 million +(IM-X) capital inflow (IM-X) equals $65 million Chapter 1 1: Income and Expenditure – 1 . Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Wastelands and Eastland.

Assuming that the aggregate price level is constant , the interest rate is fixed in both countries and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0. 5 in Wastelands and 0. 5 in Eastland. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier? Wastelands 1. Incremental change in GAP = 40 billion. Total Change in GAP = $40 billion 2.

When each resident earns $40,000 in disposable income, aggregate disposable income is 200,000 and aggregate consumer spending is $152,000. Aggregate autonomous consumer spending is $14,500 and the marginal propensity to consume is 0. 69 ( O,OHO-0) The aggregate consumption function C-$14,500 +0. Xx Hyde 4. From 2003 to 2008, Eastland experienced large fluctuations in both aggregate consumer spending and disposable income, but wealth, the interest rate, and expected future disposable income did not change.

The accompanying table shows the level of aggregate consumer spending and disposable income in millions of dollars for each of these years. Use this information to answer the following questions. A. Plot the aggregate consumption function for Eastland. 200 300 400 500 b What is the aggregate consumption donation? The aggregate consumption function the -form of c=A+ MAC x HYDE. MAC=O. 8. A-C- MAC x HYDE. A = $180 million- 0. 80 X $100 million the aggregate consumption function is C= $100 million +0. 8 x HYDE 7. How will planned investment spending change as the following events occur? A.

The interest rate falls as a result of Federal Reserve policy. A lower interest rate will lead too rise in planned investment spending. B. The U. S. Environmental Protection Agency decrees that corporations must upgrade or replace their machinery in order to reduce their emissions of sulfur dioxide. They will need to replace older machinery with newer, less polluting machinery. This will increase planned spending. C. Baby boomers begin to retire in large numbers and reduce their savings, resulting in higher interest rates. As interest rates rise, planned investment spending will fall. 8.

Explain how each of the following actions will affect the level of planned investment spending and unplanned inventory investment. Assume the economy is initially in income- expenditure equilibrium. A. The Federal Reserve raises the interest rate. A rise in interest rates will reduce planned investment spending. Planned aggregate spending will be less than GAP and inventories will accumulate. Unplanned inventory investment will be positive. B. There is a rise in the expected growth rate of real GAP. A rise in the expected growth rate of real GAP will lead to increased planned investment spending.

Planned aggregate spending will now exceed GAP. Sales will exceed expectations and will draw from inventories leading to unplanned inventory investment being negative. C. A sizable inflow of foreign funds into the country lowers the interest rate. A fall n the interest rate will lead to an increase in planned investment spending. Planned draw on inventories leading to unplanned inventory investment being negative. 9. A. The accompanying table shows gross domestic product (GAP), disposable income (HYDE), consumer spending (C), and planned investment spending (planned) in an economy.