Calculation of the official settlements balance only

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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
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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
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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.
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