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ECO100Y5 Chapter Notes - Chapter 10: Loanable Funds, Nominal Interest Rate, Government Budget Balance

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9 Apr 2016
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UTM
Department
Economics
Course
ECO100Y5
Professor
Michael H O

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Document Summary

Chapter 10 savings, investment spending, and the financial system. Savings-investment spending identity theory that savings and investment spending are always equal for the economy as a whole. Gdp = c + i + g + x im. G = government spending on goods and services. National savings (snational) total amount of domestic savings generated within an economy. Public savings (aka budget balance) difference between net tax revenue (t-tr) and government spending on final goods and services (i. e. : t-tr-g). If the budget balance is positive, then the government is running a budget surplus. If it is negative, than government is running a budget deficit. If it is 0, government is running a balanced budget. Because a closed economy has no imports (im) or exports (x) we eliminate those. Sprivate (savings by households) = gdp + tr t c. Spublic (savings by government) = t tr g.

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Related Questions

What are the relationships between current account deficit (CAD), budget deficit and national debt, knowing that the US national debt is currently at $21.13 trillion? Note the following GDP equation and identities: I = Sp + (T - G) + (Im - Ex). I=Investment; Sp=private savings; T-G = public savings, tax revenue minus government spending, which could be a budget deficit if G>T; Im-Ex = imports minus exports, which could lead to current account deficit if Im>Ex leading to NCI (net capital inflow).

1. Assume an economy with a Household Sector and a Business Sector. Household spending is given by C= 400 + 0.9Qd. Since there is no public sector, Qd = Q. Business sector spending is given as I = 1300. Determine the level of Autonomous Spending, the Spending Multiplier, GDP (Q), Consumption Spending (C) and Household Savings.

2. Now add a Foreign Sector where Exports are X = 1000 and Imports are Im = 500 + 0.1Q. Determine the level of Autonomous Spending, the Spending Multiplier, GDP (Q), Imports, Net Exports, Consumption Spending (C) and Household Savings.

3. Now add a public sector where Government Purchases are G = 2000, Transfer Payments are Tr = 2500 and Taxes are Tx = 500 + (1/3)Q. With the public sector Disposable Income is Qd = Q - Tx + Tr. Determine the level of Autonomous Spending, the Spending Multiplier, GDP (Q), Imports, Net Exports, Taxes, Disposable Income, Consumption Spending (C), Household Savings and the Deficit.

Please explain what each equation represents in the answer.

1. The government saves when it:

A) Has a balanced budget

B) Has a budget deficit.

C) Has a budget surplus.

D) Borrows by selling bonds.

2. In an open economy, total investment spending is equal to:

A) National savings plus the net capital inflow

B) Private savings plus national savings plus net capital inflow.

C) Private savings plus net capital inflow.

D) National savings minus private savings minus net capital inflow.

3. Net capital inflow is equal to:

A) GDP plus exports minus imports.

B) The growth in capital stock minus investment spending.

C) Foreign direct investment.

D) The total inflow of foreign funds minus the total outflow of domestic funds.