Chapter 10, Problem 4P

To determine

Concept Introduction:

Open Economy: The economy in which there is no restriction on trade which means that there exists imports and exports. Such an economy is referred as an Open Economy.

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

The formula to calculate investment spending is,

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,

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

The formula to calculate budget balance is,

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:

Here,

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