It is to be noted that in this economy, national saving (S), investment (I), and the trade balance are all equal to 750. The equilibrium exchange rate (E) is 1.
National saving is the amount of income that is not consumed or invested. It is calculated asfollows:
S = Y - C - G
where:
- S is national saving
- Y is national income
- C is consumption
- G is government spending
Plugging in the values from the problem,we get:
S = 5,000- 250 - 0.75(5,000 - 1,000) - 1,000
= 750
Therefore, national saving is 750.
Investment
Investment is the amount of spending on new capital goods. It is calculated as follows:
I = 1,000 - 50r
where:
• I is investment
• r is the real interest rate
Plugging in the value of r from the problem, we get:
I = 1,000 - 50(5) = 750
Therefore, investment is 750.
Trade balance
The trade balance is the difference between exports and imports. It is calculated as follows:
NX = 500 - 500e
where:
• NX is the trade balance
• e is the real exchange rate
Plugging in the value of e from the problem, we get:
NX = 500 - 500(1) = 0
Therefore, the trade balance is 0.
Equilibrium exchange rate
The equilibrium exchange rate is the exchange rate at which the trade balance is 0. It is calculated as follows:
e = 1
Therefore, the equilibrium exchange rate is 1.
In summary, it is right to state that in this economy, national saving, investment, and the trade balance are all equal to 750. The equilibrium exchange rate is 1.
Full Question:
Although part of your question is missing, you might be referring to this full question:
Consider an economy described by the following equations:
Y = C + I + G + NX,
Y = 5,000,
G = 1,000,
T = 1,000,
C = 250 + 0.75(Y – T),
I = 1,000 – 50r,
NX = 500 – 500e,
r = r* = 5.
a. In this economy, calculate the values for national saving (S), investment (I), the trade balance, and the Equilibrium exchange rate (E).