Log in
HomeStudy Guides420,000US230,000

ECON 222 Midterm: Exam 2 Study Guide

70 views4 pages
School
SC
Department
Economics
Course
ECON 222
Professor
Shimpalee

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Saving and investment in the national income accounts (165-167) Do you know s&i identity: national saving (saving)= s. S= (y - t - c) + (t - g) What are the national savings, private savings and public savings: national savings: total savings generated within the economy (public +private)= gdp-c-g. Private savings: amount of income households have left after paying taxes and consumption: gdp + tr - t - c. Public savings: amount of tax revenue the government has left after paying for its spending; government savings or government budget balance: t - (g + tr) Private saving= gdp + tr - t - c. Do you know the meaning of +/- nci: net capital inflow- net inflow of funds into a country. Positive nci= trade deficit, borrowing: negative nci= trade surplus, lending. Positive public saving (budget balance)= budget surplus: negative public saving (budget balance)= budget deficit.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers

Related Documents

ECON 222 Lecture 10: Part 2 Notes
amberporcupine513
ECON 222 Lecture 1: Part 1 Notes
amberporcupine513
ECON 222 Lecture 18: 12/6 Notes
amberporcupine513

Related Questions

Suppose an economy’s national accounts are GNP = 100, C = 70, I = 40, G = 20 and EX = 20 where GNP is gross national product, C is consumption, I is investment, G is government spending, and EX is exports. Using the national income identity, find the value of imports (IM). What is the current account balance? What is the (economy-wide) savings rate? What would the government, private, and total savings rate be if the government reduced taxes T = 10 while the other variables remain unchanged?

Assume the following values of an economy.

Planned Investment (Ip) = $20

Autonomous Consumption (C ) = $30

Marginal Propensity to consume (MPC) = .9

What is the equilibrium income?

Y* = aggregate demand at the equilibrium level. (Consumption + investment)

Consumption function = autonomous consumption + mpc * Y.

C=30 + .9Y

AD = 30 + .9Y + 20 = 50 + .9Y

Y= 50 + .9Y.1Y = 50

Y = $500 is the equilibrium level of income.

What is the value of saving at equilibrium?

Savings = income - consumption at the equilibrium level of Y=500,

Consumption = 30 +.9 * 500 = $480

Savings = 500 - 480= 20

c. Does the saving and Investment Identity hold true at equilibrium income OR GDP?

Since planned investment = $20 which is equal to savings calculated, the saving investment identity holds true at equilibrium income.

2. In addition to the values given in question (1) above, assume the government increases its spending by $30 without raising taxes. The government can do this by borrowing from the private sector.

a. Based on this information calculate the new level of equilibrium income.

If Government expenditures = $30, Y = C + I + G

Y = 1/1-.09 * (30+20+30) Y = 800

b. Calculate the total value of consumption at equilibrium.

C = 30 + .9(800) = 750

c. Calculate the total value of saving at equilibrium.

Savings = I - C = 800 - 750 = 50

3. In addition to questions in (1 & 2) above, assume the government decides to raise autonomous taxes by $30 to balance its budget.

What is the new value of equilibrium income?

Y = 1/1-.9 (30-.9(30) +20+30) = 530

What is the value of the autonomous tax multiplier?

-.09/.01 = -9

c. What is the value of autonomous spending multiplier?

1/.1 = 10

5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports: Y = Also, national saving is the income of the nation that is left after paying for . Therefore, national saving (S) is defined as: S = Rearranging the previous equation and solving for Y yields Y = . Plugging this into the original equation showing the various components of GDP results in the following relationship: S = This is equivalent to S = , since net exports must equal net capital outflow (NCO, also known as net foreign investment). Now suppose that a country is experiencing balanced trade. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to). Outcomes of Balanced Trade Imports Exports 0 Net Exports Y C+I+G Investment Saving Net Capital Outflow 0