Question

Savings, Investment Spending, and the Financial System – End of Chapter

Assume a hypothetical economy that is open to capital inflows and outflows, so that net capital inflow equals imports (IM) minus exports (X). b. The economy has the following properties: X = $85 million IM = $135 million Budget balance = $100 million Private savings = $250 million Calculate investment (I) in millions of dollars. I = $ million

Answer 1

Answer: $400 million    

Explanation:

Given that,

X = $85 million

IM = $135 million        

Budget balance = $100 million

Private savings = $250 million

Net capital inflow = imports (IM) - exports (X)

                             =  $135 million - $85 million

                             = $50 million

Investment spending = Private savings + Budget balance + Net capital inflow

                                    = $250 million + $100 million + $50 million

                                    =  $400 million