Question

In the open economy of Sildavia, government spending during 2005 was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $100 billion. If investment spending in Sildavia during 2005 was $10 billion, we can conclude that Sildavia registered:

Answer 1

net capital inflow of $10 billion

Step-by-step explanation:

GDP = C + I + G + X

• GDP = $100 billion
• C = $70 billion
• G = $30 billion
• I = $10 billion

$100 billion = $70 billion + $10 billion + $30 billion - $10 billion

If investment was $10 billion, it must come from foreign investors. When the capital inflow (foreign investment in domestic market) is larger than the capital outflow (domestic investment in foreign market), we have net capital inflow that increases investment account.

Capital inflows represents foreign investors investing in domestic assets, or less domestic investors spending in foreign assets.