Consider a small open economy with desired national saving of S^d = 200 + 10,000r^w and desired investment of I^d = 1000 - 5000r^w.If r^w = 0.05,and output = 5000,then absorption equals A)5100. B)5050. C)4950. D)4900.

Question

Quizplus · Accepted Answer

Absorption is defined as the sum of national saving and investment in an economy. Therefore, we can calculate absorption as follows: Absorption = S^d + I^d Absorption = (200 + 10,000r^w) + (1000 - 5000r^w) Absorption = (200 + 10,000*0.05) + (1000 - 5000*0.05) Absorption = 5050 Therefore, the absorption in this economy is 5050. The correct answer is B.

Consider a Small Open Economy with Desired National Saving of Sd

Consider a Small Open Economy with Desired National Saving of S^d