In an open economy, (a) I = S + EX (b) I = S + CA...
In an open economy,
(a) I = S + EX
(b) I = S + CA
(c) I = S - EX
(d) I = S + IM - EX
(e) I = S + EX - IM
Homework Answers
Answer
In an open economy, Economy is in equilibrium when Y = AE where AE = aggregate expenditure = C + I + G + EX - IM, Y = GDP, C = consumption, I = investment, G = government spending, EX = exports and IM = Imports.
Hence we have Y = C + I + G + EX - IM => I = Y - C - G - EX + IM --------------------(2)
National saving(S) = Private saving + Public saving, where Private saving = Y - C - T where T = taxes and Public saving = T - G
=> S = (Y - C - T) + (T - G) = Y - C - G -----------------------(2)
From (1) and (2) we get :
I = Y - C - G - EX + IM = S - EX + IM
=> I = S + IM - EX
Hence, the correct answer is (d) I = S + IM - EX
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1-5
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1-5
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