Question

Show the relationship between the public saving and the net export based on the absorption approach. What are the effects of the following events on the U.S. GDP and its components? What are the effects of the following events on the U.S. current account and financial account? (1) Apple Company sold $10,000 computers to a German company. (2) The U.S. Government spent 0.5 million dollars on purchasing printing machines made in Japan. (3) The U.S. Government spent 1 million dollars on social security.

Answer 1

so/ Relation between public savings (T-G) and net exports (X-M), Tis tax, G is government spending, & is total exports and M is total imports. Supply of financial capital = 5+(M-X) sis domestic savings, whereas total fina -nea inflows in the country is equal to bade defict. Demand of financial capital - It (G-T) I is total private investment, Whereas G-T is public investement Equating supply and demand, we get St(M= x) = lt (G-T) or T-G = I-s +(X-M) 11 Apple sold computers to German compoony Us Gop increases due to increase in exports since exports increase, it leads to current account surplus and a deficit en financial coccount by the same amount

1 us bought printing machines from Juparn, there dose in imports. Reduction is us GOP. There is a current account defrac since impolts increase. I surplus in financial account by the same amount Government Spending on social security: os GDP increase on account of increase in goveginment Spending Acedding to the equation doived above, if s and I are constant, then an increase in G leads to a trade difficult. It means that there will be a deficit in current account but a surplus in financial allount by the same amount