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,then a rise in government spending of 50 with no change in private saving causes net exports to become A)100. B)50. C)-50. D)-100.

Question

Quizplus · Accepted Answer

The initial net exports are calculated as S^d - I^d = (200 + 10,000*0.05) - (1000 - 5000*0.05) = 700 - 750 = -50. With a rise in government spending of 50, net exports decrease by 50, resulting in -100.

Consider a Small Open Economy with Desired National Saving of Sd

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