To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

Question

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Answer 1

Question

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

Chapter 5, Problem 5NP

a)

To determine

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

a)

Expert Solution

Explanation of Solution

SH=YH−CH−GH=1000−(100+( 0.5×1000)−500r)−155=255+500r

SH=YH−CH−GH=1200−(225+( 0.7×1200)−600r)−190=55+600r

H refers to home country, SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve economic growth.

b)

To determine

To ascertain the equilibrium values of the world real interest rate

b)

Expert Solution

Explanation of Solution

NXH=SH−IH=245+500r−(300−500r)=−55+1000r

NXH=SH−IH=−55+600r−(250−200r)=−305+800r

In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:

NXH−NXF=0

So,

−55+1000r+(−305+800r)=01800r=360r=0.20

NXH Refers to the national income of home country, NXF refers to the national income for foreign country, IF and SF refers to investment and saving for foreign country, r is real interest rate.

Economics Concept Introduction

Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation

c)

To determine

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

c)

Expert Solution

Explanation of Solution

CH=100+(0.5×1000)−(500×0.20)=500

SH=245+(500×0.20)=345

IH=300+(500×0.20)=200

CAH=NXH=−55+(1000×0.20)=145 (Assume NFP = 0)

Absorbtion=CH+IH+GH=500+200+155=855

CF=225+(0.7×1200)−(600×0.20)=945

SF=−55+(600×0.20)=65

SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: The growth of an economy is affected by national savings. Consumption, balance of trade, investment and a proper allocation of savings in to efficient investment can lead a country towards better growth.

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Students have asked these similar questions

Draw a diagram for Saving and Investment in a small open economy.Assume the world real interest rate is above the closed equilibrium interestrate for the country you drew. Is this country a foreign lender or foreignborrower? Explain with the intuition of the saving and investment functions

Economics Consider the following data for country B, an open economy, for this year: Y = $14 trillion C = $6 trillion G = $2 trillion NX = $3 trillion T = $4 trillion TR = $0.5 trillion a) Find country B’s domestic investment. b) Find country B’s private saving. c) Find country B’s public saving. d) Find country A’s national saving. e) Find country B’s net foreign investment

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?

Answer 2

Question

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

Chapter 5, Problem 5NP

a)

To determine

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

a)

Expert Solution

Explanation of Solution

SH=YH−CH−GH=1000−(100+( 0.5×1000)−500r)−155=255+500r

SH=YH−CH−GH=1200−(225+( 0.7×1200)−600r)−190=55+600r

H refers to home country, SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve economic growth.

b)

To determine

To ascertain the equilibrium values of the world real interest rate

b)

Expert Solution

Explanation of Solution

NXH=SH−IH=245+500r−(300−500r)=−55+1000r

NXH=SH−IH=−55+600r−(250−200r)=−305+800r

In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:

NXH−NXF=0

So,

−55+1000r+(−305+800r)=01800r=360r=0.20

NXH Refers to the national income of home country, NXF refers to the national income for foreign country, IF and SF refers to investment and saving for foreign country, r is real interest rate.

Economics Concept Introduction

Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation

c)

To determine

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

c)

Expert Solution

Explanation of Solution

CH=100+(0.5×1000)−(500×0.20)=500

SH=245+(500×0.20)=345

IH=300+(500×0.20)=200

CAH=NXH=−55+(1000×0.20)=145 (Assume NFP = 0)

Absorbtion=CH+IH+GH=500+200+155=855

CF=225+(0.7×1200)−(600×0.20)=945

SF=−55+(600×0.20)=65

SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: The growth of an economy is affected by national savings. Consumption, balance of trade, investment and a proper allocation of savings in to efficient investment can lead a country towards better growth.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

Chapter 5, Problem 5NP

a)

To determine

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

a)

Expert Solution

Explanation of Solution

SH=YH−CH−GH=1000−(100+( 0.5×1000)−500r)−155=255+500r

SH=YH−CH−GH=1200−(225+( 0.7×1200)−600r)−190=55+600r

H refers to home country, SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve economic growth.

b)

To determine

To ascertain the equilibrium values of the world real interest rate

b)

Expert Solution

Explanation of Solution

NXH=SH−IH=245+500r−(300−500r)=−55+1000r

NXH=SH−IH=−55+600r−(250−200r)=−305+800r

In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:

NXH−NXF=0

So,

−55+1000r+(−305+800r)=01800r=360r=0.20

NXH Refers to the national income of home country, NXF refers to the national income for foreign country, IF and SF refers to investment and saving for foreign country, r is real interest rate.

Economics Concept Introduction

Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation

c)

To determine

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

c)

Expert Solution

Explanation of Solution

CH=100+(0.5×1000)−(500×0.20)=500

SH=245+(500×0.20)=345

IH=300+(500×0.20)=200

CAH=NXH=−55+(1000×0.20)=145 (Assume NFP = 0)

Absorbtion=CH+IH+GH=500+200+155=855

CF=225+(0.7×1200)−(600×0.20)=945

SF=−55+(600×0.20)=65

SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: The growth of an economy is affected by national savings. Consumption, balance of trade, investment and a proper allocation of savings in to efficient investment can lead a country towards better growth.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

Chapter 5, Problem 5NP

a)

To determine

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

a)

Expert Solution

Explanation of Solution

SH=YH−CH−GH=1000−(100+( 0.5×1000)−500r)−155=255+500r

SH=YH−CH−GH=1200−(225+( 0.7×1200)−600r)−190=55+600r

H refers to home country, SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve economic growth.

b)

To determine

To ascertain the equilibrium values of the world real interest rate

b)

Expert Solution

Explanation of Solution

NXH=SH−IH=245+500r−(300−500r)=−55+1000r

NXH=SH−IH=−55+600r−(250−200r)=−305+800r

In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:

NXH−NXF=0

So,

−55+1000r+(−305+800r)=01800r=360r=0.20

NXH Refers to the national income of home country, NXF refers to the national income for foreign country, IF and SF refers to investment and saving for foreign country, r is real interest rate.

Economics Concept Introduction

Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation

c)

To determine

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

c)

Expert Solution

Explanation of Solution

CH=100+(0.5×1000)−(500×0.20)=500

SH=245+(500×0.20)=345

IH=300+(500×0.20)=200

CAH=NXH=−55+(1000×0.20)=145 (Assume NFP = 0)

Absorbtion=CH+IH+GH=500+200+155=855

CF=225+(0.7×1200)−(600×0.20)=945

SF=−55+(600×0.20)=65

SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: The growth of an economy is affected by national savings. Consumption, balance of trade, investment and a proper allocation of savings in to efficient investment can lead a country towards better growth.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 5, Problem 5NP

a)

To determine

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

a)

Expert Solution

Explanation of Solution

SH=YH−CH−GH=1000−(100+( 0.5×1000)−500r)−155=255+500r

SH=YH−CH−GH=1200−(225+( 0.7×1200)−600r)−190=55+600r

H refers to home country, SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve economic growth.

b)

To determine

To ascertain the equilibrium values of the world real interest rate

b)

Expert Solution

Explanation of Solution

NXH=SH−IH=245+500r−(300−500r)=−55+1000r

NXH=SH−IH=−55+600r−(250−200r)=−305+800r

In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:

NXH−NXF=0

So,

−55+1000r+(−305+800r)=01800r=360r=0.20

NXH Refers to the national income of home country, NXF refers to the national income for foreign country, IF and SF refers to investment and saving for foreign country, r is real interest rate.

Economics Concept Introduction

Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation

c)

To determine

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

c)

Expert Solution

Explanation of Solution

CH=100+(0.5×1000)−(500×0.20)=500

SH=245+(500×0.20)=345

IH=300+(500×0.20)=200

CAH=NXH=−55+(1000×0.20)=145 (Assume NFP = 0)

Absorbtion=CH+IH+GH=500+200+155=855

CF=225+(0.7×1200)−(600×0.20)=945

SF=−55+(600×0.20)=65

SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: The growth of an economy is affected by national savings. Consumption, balance of trade, investment and a proper allocation of savings in to efficient investment can lead a country towards better growth.

Answer 6

Chapter 5, Problem 5NP

a)

To determine

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

a)

Expert Solution

Explanation of Solution

SH=YH−CH−GH=1000−(100+( 0.5×1000)−500r)−155=255+500r

SH=YH−CH−GH=1200−(225+( 0.7×1200)−600r)−190=55+600r

H refers to home country, SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve economic growth.

Answer 7

Chapter 5, Problem 5NP

a)

To determine

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

Answer 8

a)

Expert Solution

Explanation of Solution

SH=YH−CH−GH=1000−(100+( 0.5×1000)−500r)−155=255+500r

SH=YH−CH−GH=1200−(225+( 0.7×1200)−600r)−190=55+600r

H refers to home country, SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve economic growth.

Answer 13

b)

To determine

To ascertain the equilibrium values of the world real interest rate

b)

Expert Solution

Explanation of Solution

NXH=SH−IH=245+500r−(300−500r)=−55+1000r

NXH=SH−IH=−55+600r−(250−200r)=−305+800r

In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:

NXH−NXF=0

So,

−55+1000r+(−305+800r)=01800r=360r=0.20

NXH Refers to the national income of home country, NXF refers to the national income for foreign country, IF and SF refers to investment and saving for foreign country, r is real interest rate.

Economics Concept Introduction

Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation

Answer 14

b)

To determine

To ascertain the equilibrium values of the world real interest rate

Answer 15

b)

Expert Solution

Explanation of Solution

NXH=SH−IH=245+500r−(300−500r)=−55+1000r

NXH=SH−IH=−55+600r−(250−200r)=−305+800r

In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:

NXH−NXF=0

So,

−55+1000r+(−305+800r)=01800r=360r=0.20

NXH Refers to the national income of home country, NXF refers to the national income for foreign country, IF and SF refers to investment and saving for foreign country, r is real interest rate.

Answer 16

b)

Expert Solution

Answer 17

b)

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation

Answer 20

c)

To determine

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

c)

Expert Solution

Explanation of Solution

CH=100+(0.5×1000)−(500×0.20)=500

SH=245+(500×0.20)=345

IH=300+(500×0.20)=200

CAH=NXH=−55+(1000×0.20)=145 (Assume NFP = 0)

Absorbtion=CH+IH+GH=500+200+155=855

CF=225+(0.7×1200)−(600×0.20)=945

SF=−55+(600×0.20)=65

SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Economics Concept Introduction

Introduction: The growth of an economy is affected by national savings. Consumption, balance of trade, investment and a proper allocation of savings in to efficient investment can lead a country towards better growth.

Answer 21

c)

To determine

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

Answer 22

c)

Expert Solution

Explanation of Solution

CH=100+(0.5×1000)−(500×0.20)=500

SH=245+(500×0.20)=345

IH=300+(500×0.20)=200

CAH=NXH=−55+(1000×0.20)=145 (Assume NFP = 0)

Absorbtion=CH+IH+GH=500+200+155=855

CF=225+(0.7×1200)−(600×0.20)=945

SF=−55+(600×0.20)=65

SH , YH , CH , GH refers to saving, full employment output, consumption, government purchase of the home country. S_F, Y_F, C_F,G_F refers to the saving, full employment output, consumption, government purchase of the foreign country. And rw refers to the world real interest rate

Answer 23

c)

Expert Solution

Answer 24

c)

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Introduction: The growth of an economy is affected by national savings. Consumption, balance of trade, investment and a proper allocation of savings in to efficient investment can lead a country towards better growth.

Answer 27

Ch. 5 - Prob. 1RQ Ch. 5 - Prob. 2RQ Ch. 5 - Prob. 3RQ Ch. 5 - Prob. 4RQ Ch. 5 - Prob. 5RQ Ch. 5 - Prob. 6RQ Ch. 5 - Prob. 7RQ Ch. 5 - Prob. 8RQ Ch. 5 - Prob. 9RQ Ch. 5 - Prob. 10RQ

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

Solution Summary: The author explains that national savings are important for countries' economic development because they generate investment. The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation

To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.

Explanation of Solution

To ascertain the equilibrium values of the world real interest rate

Explanation of Solution

To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.

Explanation of Solution

Want to see more full solutions like this?

Chapter 5 Solutions