Macroeconomics
Macroeconomics
5th Edition
ISBN: 9781319098759
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 10, Problem 3P
To determine

Concept Introduction:

Open Economy: The economy in which there is no restriction on trade which means that there exist import and export. Such economy is referred as Open Economy.

Investment spending: All those spending which are done on physical capital which means that the expenses incurred increases level of physical capital in the economy is known as investment spending.

The formula to calculate investment spending is,

    Macroeconomics, Chapter 10, Problem 3P , additional homework tip  1

Here,

  • I is investment spending.
  • GDP is gross domestic product.
  • C is consumption spending.
  • G is government spending.
  • IM is quantity of import.
  • X is quantity of export.

Private Saving: It is the saving made by people for the time of emergency or the bad financial conditions.

The formula to calculate private saving is,

    Macroeconomics, Chapter 10, Problem 3P , additional homework tip  2

Here,

  • T is tax revenue.
  • GDP is gross domestic product.
  • C is consumption spending.

Budget Balance: The budget is considered to be balanced when revenue collected from tax and expenditures made by government are equal. When it is deficit it is represented by negative value, when it is surplus it is represented by positive value and in case of balanced budget it is zero.

The formula to calculate budget balance is,

    Macroeconomics, Chapter 10, Problem 3P , additional homework tip  3

Here,

  • T is tax revenue.
  • G is government spending.

Net Capital Inflow: It is the total amount of incoming of all the financial assets into a country which is then deducted from the total outgoing of financial assets out of a country.

The formula to calculate net capital inflow is,

    Macroeconomics, Chapter 10, Problem 3P , additional homework tip  4

Here,

  • IM is quantity of import.
  • X is quantity of export.

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