Answered: A country’s private consumption is 30,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A country’s private consumption is 30, government spending is 7, investment is 5, net factor income from abroad is 2, GDP is 45. The country’s gross national disposable income is 46. the country’s gross national income is 47. the gross national expenditure is 42 and the Current account is 4. The country sent abroad 2 and received 1 of unilateral transfers.

The rest of the world claims 100 of debt from the country above. This is a stock variable. The country lends at 4% and borrows at 3%. These are rates of change of stocks. Use this information combined with one of the flow variables describing the country’s international transactions to find the stock of what the world owes this country.

Note: no workers worked across the border. No wages flowed in, none flowed out.

Is the country from the previous question rich or poor?

Does it enjoy the exorbitant privilege?

In what important way is this country’s stock and flow of investment different from the US?

Expert Solution

Step 1: Calculating the stock of what the world owes this country

We know that the rest of the world claims 100 of debt from the country. The country lends at 4% and borrows at 3%. This means that the stock of debt is increasing by

$4 percent sign space minus space 3 percent sign space equals space 1 percent sign space p e r space y e a r$

The current account is 4, which means that the country is running a trade surplus. This means that the country is receiving more money from abroad than it is sending out.

So, the stock of what the world owes this country is increasing by 1% per year, and the country is running a trade surplus. This means that the stock of what the world owes this country is increasing at a rate of

$1 percent sign space cross times space 4 space equals space 4 percent sign space p e r space y e a r.$

However, we are not given the initial stock of debt, so we cannot calculate the final stock of debt.

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