Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Question
Chapter 5, Problem 2NP
To determine
To calculate: The relationship between net export and foreign lending. The calculation of the national saving, foreign lending, absorption, and net export.
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Students have asked these similar questions
The following equations describe a small open-economy:
C = 10 + 0.5Y
I = 160 - 50r
NX = 80 - 0.1Y - e
e = 50 - 0.1Y + B (r-r*)
G= 10
where C is consumption, I is investment, Y is domestic output, r is the domestic real interest
rate, NX is net exports, e is the real exchange rate, G is government spending and r* is the
foreign real interest rate.
(a) Suppose that ß is fairly small, ß = 5, full employment output is Y = 400 and r* = 0.1. What
is the equilibrium value of the domestic interest rate, r?
(b) Consider instead that ß is fairly large, B = 1000, where again Y = 400 and r* = 0.1. What is
the equilibrium value of the domestic interest rate?
(c) What happens to r as ß increases? Does r converge to r* as ß approaches infinity? What
type of small open economy model does this resemble?
Calculate net exports and the amount of net foreign lending for a hypothetical small open economy with saving of $145 billion
and domestic investment of $118 billion.
net exports: $
billion
net foreign lending: $
billion
Calculate net exports and the amount of net foreign lending for a hypothetical small open economy with saving of $145 billion
and domestic investment of $118 billion.
net exports: $
263
Incorrect
net foreign lending: $
27
billion
billion
Chapter 5 Solutions
Macroeconomics (9th Edition)
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- In 2010, the economy of the Utopia exported goods worth $232 billion and services worth another $87 billion. It imported goods worth $225 billion and services worth $56 billion. Receipts of income from abroad were $110 billion while income payments going abroad were $91 billion. Government transfers from the Utopia to the rest of the world were $23 billion, while various Utopia government agencies received payments of $16 billion from the rest of the world. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for Utopia in 2010.arrow_forwardFor an open economy: with no depreciation, GNP=GDP. imports are included in the calculation of GNP but not of GDP. more imports will, all the rest being constant, increase GNP. net international transfer payments are included in GNP but not in GDP.arrow_forwardWhich of the following is included in a nation's current account? a) Purchases of foreign assets b) Borrowings from abroad c) Foreign purchases of U.S. financial assets d) Investment income receipts e) Purchases of foreign real propertyarrow_forward
- Question 8 Suppose real GDP per capita in Sweden is 328,689 krona, and the price level in Sweden (measured using an international index) is 130. Suppose real GDP per capita in Botswana is 13,438 pula, and the price level (measured using that same index) in Botswana is 55. The market exchange rate is 1 pula = 0.84 krona. What would be the purchasing power parity adjusted ratio of real GDP per capita in Sweden to that in Botswana?arrow_forwardConsider the following data for MILESTONES, a hypothetical economy and nation-state. GDP = 8500 billion Government Purchases 500 billion Government Tax Revenue = 1000 billion Welfare Payments = 200 billion Social Security Payments = 400 billion Medicare Payments 300 billion Interest Payments 200 billion Consumption = 7200 billion Gross Investment 800 billion Net Foreign Factor Income = -500 billion PART A 1. What is the level of national saving(NS) in MILESTONES 2. What is the current account (CA) balance in MILESTONES? 3. Describe the current relationship between saving (NS) and gross investment (GI)?arrow_forwardWould each of the following transactions be includedin U.S. net exports or in U.S. net capital outflow?Indicate whether it would represent an increase or adecrease in that variable.a. An American buys a Sony TV.b. An American buys a share of Sony stock.c. The Sony pension fund buys a bond from theU.S. Treasury.d. A worker at a Sony plant in Japan buys someGeorgia peaches from an American farmer.arrow_forward
- What are the trends regarding foreign direct investment (FDI) in the world economy?arrow_forwardConsider the following open economy. Real GDP 1,000 Consumption 774 Government Expenditures 197 Investment 282 Exports 13 Taxes 185 Transfers 88 If the economy invested 10 of its savings abroad, how much savings did it receive from abroad? Do not write the dollar ($) sign, and use a minus (-) in front of a decrease. Round your answer at one (1) decimal if necessary.arrow_forwardWhen there are two large open economies in the world, if capital goods become relatively cheaper compared to consumption goods in the foreign country, the world real interest rate will and the home country's current account will fall; rise fall; fall rise; rise rise; fallarrow_forward
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