Question

4. Saving and net flows of capital and goods In a dosed economy. saving and gross investment must be equal, but this is not the case pe economy. In the following problem you explore how saving and gros investment are connected to the international flow of capital and good in an econom. Bording to the relationship between these various components of an economy, you will be asked to recall some relationship between agregate variables that will be useful in your analysis Recall the components that make up G National income (Y) equal total expenditure on the economy's output of goods and services. Thus, where C - consumption, 1 - gross investment, government ending, and NX - net ports, is died as follows: National savings is the income of the nation that wing for comment a t ion The B usindo Y backup DEG HUKO COE

Answer 1

In a closed economy,

GDP or Y(national Income)= C+ I+G

National Savings= Y-C-G which is amount not consumed or spent by the government

But the question deals with open economy.

So:

In an open economy,

Y =C+I+G+NX

National Savings= Y-C-G= S. It implies S= I+NX

Rearranging, we get, Y= S+ C +G