Final answer:
The saving of a country with $3 billion domestic investment and $2 billion net exports is $5 billion. The U.S. current account balance would be -$200 billion with a $100 billion budget deficit, $1,500 billion domestic savings, and $1,600 billion investment. The balance would be -$250 billion if the investment increased by $50 billion.
Step-by-step explanation:
The student asked about the savings of a country given its domestic investment and net exports. To find the saving, we use the national saving and investment identity: saving = investment + net exports. Given that the country's domestic investment is $3 billion and net exports are $2 billion, the country's saving would be:
Saving = Domestic Investment + Net Exports
Saving = $3 billion + $2 billion
Saving = $5 billion
To further elaborate, the national saving and investment identity can be applied to different scenarios as demonstrated in the problem-solving examples provided. For instance, if the U.S. economy has a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion, the current account balance can be calculated. The current account balance would be:
Current Account Balance = Domestic Savings - (Physical Capital Investment + Budget Deficit)
Current Account Balance = $1,500 billion - ($1,600 billion + $100 billion)
Current Account Balance = $1,500 billion - $1,700 billion
Current Account Balance = -$200 billion
If the investment rises by $50 billion while the budget deficit and national savings remain unchanged, the new current account balance would be:
Current Account Balance = Domestic Savings - (Physical Capital Investment + Budget Deficit + Increase in Investment)
Current Account Balance = $1,500 billion - ($1,600 billion + $100 billion + $50 billion)
Current Account Balance = $1,500 billion - $1,750 billion
Current Account Balance = -$250 billion