Consider a small open economy with desired national saving of Sd = 200 + 10,000rw and desired investment of Id = 1,000 - 5,000rw.If rw = 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 (NX) are calculated as Sd - Id = (200 + 10,000*0.05) - (1,000 - 5,000*0.05) = 700 - 750 = -50. A rise in government spending of 50 reduces national saving by 50, making NX = -50 - 50 = -100.

Consider a Small Open Economy with Desired National Saving of Sd