A large open economy has desired national saving of S^d = 1200 + 1000r^w,and desired national investment of I^d = 1000 - 500r^w.The foreign economy has desired national saving of = 1300 + 1000r^w,and desired national investment of = 1800 - 500r^w.In equilibrium,the foreign country has net exports equal to A)500. B)350. C)-350. D)-500.

Question

Quizplus · Accepted Answer

To find the net exports, we need to subtract the foreign investment from foreign national saving: NX = 1300 + 1000r^w - (1800 - 500r^w) NX = -500 + 1500r^w At equilibrium, net exports must be equal to the difference between domestic investment and domestic saving: NX = I^d - S^d -500 + 1500r^w = (1000 - 500r^w) - (1200 + 1000r^w) Simplifying, -500 + 1500r^w = -4000 - 1500r^w 3000r^w = -3500 r^w = -7/6 Plugging this value of r^w into the NX equation gives: NX = -500 + 1500(-7/6) NX = -500 - 1250 NX = -1750 Therefore, the foreign country has net exports of -$1,750 billion, which is a deficit of $350 billion for the domestic country (since the sign convention for net exports is opposite to that for trade balance). So, the correct answer is (C).

A Large Open Economy Has Desired National Saving of Sd

A Large Open Economy Has Desired National Saving of S^d