a Figure 1 shows the exogenous world interest rate (r*) determines the level of investment (I) and the difference between saving (S) and investment determines net capital outflow and net exports (NX) for a small open economy. What would happen to I, NX and S if: i. The government of this small open economy uses expansionary fiscal policy. ii. The government of other countries (abroad) uses contractionary fiscal policy. b Suppose the price of a cup of tea is Rs.50 in Pakistan and $2 in USA, the value of nominal exchange rate is $0.006364 per PKR. Calculate the value of real exchange rate (ε) and interprete its meaning. Also, discuss the relationship between net exports (NX) and real exchange rate. c Briefly explain the theory of purchasing power parity (PPP) with the help of example.

Q: Consider the following open economy SI model set up Y = 18000 C = 300 + 0.8(Y − 2500) I = 3500 −…

A: (a) C = 300 + 0.8(Y-2500) Put Y = 18000 => C = 300 + 0.8(18000 - 2500) => C = 300 + 12400…

Q: Briefly explain what a change in any part of the national saving and investment identity points out.

A:

Q: . Assume that the gross domestic product is $6,000, personal disposal income is $5,100, the…

A: a. Private Saving = $1,300b. Investment = $1,300c. Government Spending = $800d. National Savings =…

Q: 5. Current account deficit Let G stand for government spending, T for taxes, I for private…

A: Balance of Payment implies BOP is the comprehensive record of all international transactions in the…

Q: Question 2 Clearly distinguish between each of the following terms: 4.1 Injection and withdrawal 4.2…

A: 4.1 Injection and withdrawal Injections: Injections can be defined as the amount of money that is…

Q: transse National savings & investment identity 29. If the budget deficit in a country rises, all…

A: The question is asking about the impact of an increase in a country's budget deficit on its domestic…

Q: 1. An economy that starts with a positive net international investment position will run a trade…

A: Since, you have asked multiple questions, we will be answering the first one for you. If you want…

Q: Please explain on how you get the Y

A: GDP refers to the total value of finished goods and services that produced within the economic…

Q: 2. A small open economy is described by the following equations: C = 60 +.75(Y - T) I= 150 - 20r NX…

A: Given Information: C = 60 + 0.75(Y-T) I = 150 - 20r NX = 150-50e M/P = Y-40r G= 1500 M = 2000 P = 2…

Q: If the economy is in equilibrium, and the budget deficit = zero, the trade deficit = $200 and…

A: Saving = Investment + Budget (G-T) + Net exports(X-M)  = 300 + 0 + -200 Savings = 100

Q: Hi, i need help with part a and d only. Thanks

A: Gross domestic product is the value of goods and services that are produced within the given time…

Q: (a) Can current account deficits indicate the health of an economy? Explain (b) Do you expect the…

A: Balance of paymentBalance of payment is the all data record of all exports and imports of a country…

Q: 2.) The country of Albanystan (country A) forms a small open economy on its own. It has savings SA =…

A: CAA is an abbreviation used for the current account of country A. CAB is an abbreviation used for…

Q: The great country of Naboombu has private savings of $700 billion, investment of $800 billion, tax…

A: Government surplus refers to the money left with the government after carrying out developmental…

Q: Hints: Equilibrium Condition is S=I. If economy is open r=r*. Assume that in a small open economy…

A: Analysis of macroeconomic variables in the context of the open economy supports the development of…

Q: The table below includes information on the hypothetical economy of Hersty. Assume the government is…

A: The twin deficit or double deficit is defined as the economy having both fiscal and current deficits…

Q: Explain why, in a small open economy, national saving can be less than investment. Use a…

A: Answer: A small open economy, is an economy which is open for lending and borrowing internationally.…

Q: only part b, c, d (please draw the graph manually if you can)

A: A small open economy is one that engages in international commerce but is sufficiently unimportant…

Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.