# Calculation of the official settlements balance only

This preview shows pages 1–4. Sign up to view the full content.

calculation of the official settlements balance only; it does not affect the capital account. Refer to textbook example P.147 Table 5.1) Official settlement balance = 30 35 = -\$5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Week 8 Tutorial Questions Solutions (Ch5) Week 8 Page 2 Statistical discrepancy (SD): CA + KA + SD = 0 55 + 40 + SD = 0 SD = 15 Q2: In a small open economy, Desired national saving, S d = \$10 billion + (\$100 billion) r w Desired investment, I d = \$15 billion (\$100 billion) r w Output, Y = \$50 billion Government purchases, G = \$10 billion World real interest rate, r w = 3% a) Find the economy’s national savin g, investment, current account surplus, net exports, desired consumption, and absorption. Answer: S d = 10 + (100 × 0.03) = \$13 I d = 15 (100 x 0.03) = \$12 NX = CA = S d I d = 13 12 = \$1 C d = Y (I + G + NX) = 50 (12 + 10 + 1) = \$27 Absorption = C + I + G = 27 + 12 + 10 = \$49 b). Owing to a technological innovation, the country’s desired investment rises by \$2 billion at each level of the world real interest rate, repeat part (a). Answer: S d = 10 + (100 × 0.03) = \$13 I d = 17 (100 × 0.03) = \$14 NX = CA = S d I d = 13 14 = \$1 C = Y (1 + G + NX) = 50 (14 + 10 1) = \$27 Absorption = C + I + G = 27 + 14 + 10 = \$51
Week 8 Tutorial Questions Solutions (Ch5) Week 8 Page 3 Q3. Consider a world with only two countries, which are designated the home country (H) and the foreign country (F). Output equals its full-employment level in each country. You are given the following information about each country: Home country Consumption: C H = 100 + 0.5Y H 500r Investment: I H = 300 500r Government purchases: G H = 155 Full-employment output: Y H = 1000 Foreign country Consumption: C F = 225 + 0.7Y F 600r Investment: I F = 250 200r Government purchases: G F = 190 Full-employment output: Y F = 1200 a). write national saving in the home country and in the foreign country as functions of the world real interest rate r.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern