Question

Savings, Investment Spending, and the Financial System – End of Chapter

Assume a hypothetical economy that is open to capital inflows and outflows, so that net capital inflow equals imports (IM) minus exports (X). b. The economy has the following properties: X = $85 million IM = $135 million Budget balance = $100 million Private savings = $250 million Calculate investment (I) in millions of dollars. I = $ million

Answer 1

Answer: $400 million

Step-by-step explanation:

Given that,

X = $85 million

IM = $135 million

Budget balance = $100 million

Private savings = $250 million

Net capital inflow = imports (IM) - exports (X)

= $135 million - $85 million

= $50 million

Investment spending = Private savings + Budget balance + Net capital inflow

= $250 million + $100 million + $50 million

= $400 million