Question

At the beginning of the year, Ryan's capital account balance in the RUS Partnership (in which Ryan owned a 40

1) $294,000
2) $344,000
3) $296,400
4) $346,400
5) $306,400

Answer 1

The current account balance is calculated by subtracting the total domestic physical capital investment from the total domestic savings. In the given scenario, the current account balance would be -$100 billion initially and would decrease to -$150 billion if capital investment increases by $50 billion while other factors remain constant.

Step-by-step explanation:

National Saving and Investment Identity

The subject of the question revolves around national saving and investment identity, which is a macroeconomic concept reflecting the relationship between a nation's saving and investment. In the given scenario, 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. According to the national saving and investment identity, the current account balance can be calculated as the difference between national savings and domestic investment.

If the total domestic savings are $1,500 billion, and the physical capital investment is $1,600 billion, the current account balance would be -$100 billion ($1,500 billion - $1,600 billion). This negative balance suggests that the country is a net borrower from the rest of the world.

Now, if the capital investment rises by $50 billion to $1,650 billion, while the budget deficit and national savings remain the same, the new current account balance would be -$150 billion ($1,500 billion savings - $1,650 billion investment). This further increases the net borrowing requirement from abroad.