Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 31, Problem 2SCQ
Assume an economy has a budget surplus of
- Write out a national saving and investment identity for this economy.
- What will be the
balance of trade in this economy? - If the budget surplus changes to a budget deficit of
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In an economy open to trade, must a government budget deficit always be accompanied by an external sector deficit? Why or why not? Could a government budget deficit lead to a government budget surplus?
Consider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the economy of this country in billions of dollars, where C is consumption, DI is disposable income, I is investment, and G is government purchases:
C�
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G�
= =
5050
I�
= =
6060
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In a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private investment in this economy?
Chapter 31 Solutions
Principles of Economics 2e
Ch. 31 - In a country, private savings equals 600, the...Ch. 31 - Assume an economy has a budget surplus of 1,000,...Ch. 31 - In the late 1990s, the U.S. government moved from...Ch. 31 - Imagine an economy in which Ricardian equivalence...Ch. 31 - Why have many education experts recently placed an...Ch. 31 - What are some steps the government can take to...Ch. 31 - Based on the national saving and investment...Ch. 31 - How would you expect larger budget deficits to...Ch. 31 - Under what conditions will a larger budget deficit...Ch. 31 - What is the theory of Ricardian equivalence?
Ch. 31 - What does the concept of rationality have to do...Ch. 31 - What are some of the ways fiscal policy might...Ch. 31 - What are some fiscal policies for improving a...Ch. 31 - What are some fiscal policies for improving the...Ch. 31 - Explain how cuts in funding for programs such as...Ch. 31 - Assume there is no discretionary increase in...Ch. 31 - Explain how decreased domestic investments that...Ch. 31 - The U.S. government has shut down a number of...Ch. 31 - Explain how a shift from a government budget...Ch. 31 - Describe how a plan for reducing the government...Ch. 31 - Explain whether or not you agree with the premise...Ch. 31 - Explain why the government might prefer to provide...Ch. 31 - Under what condition would crowding out not...Ch. 31 - What must take place for the government to run...Ch. 31 - Sketch a diagram of how a budget deficit causes a...Ch. 31 - Sketch a diagram of how sustained budget deficits...Ch. 31 - Assume that the newly independent government of...Ch. 31 - Illustrate the concept of Ricardian equivalence...Ch. 31 - During the most recent recession, some economists...
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Similar questions
- When is a trade deficit likely to work out well for an economy? When is it likely to work out poorly?arrow_forwardIf imports exceed exports, is it a trade deficit or a trade surplus? What about if exports exceed imports?arrow_forwardExplain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy. Living In an especially large country Having a domestic investment rate much higher than the domestic savings rate Having many other large economies geographically nearby Having an especially large budget deficit Having countries with a tradition of strong protectionist legislation shutting out importsarrow_forward
- Does a trade surplus mean an overall inflow of financial capital to an economy, or an overall outflow of financial capital? What about a trade deficit?arrow_forwardGenerally, how does the standard of living in the United States today compare to the standard of living in other countries? To the standard of living in the United States a century ago?The Bureau of Economic Analysis, or BEA, is a government agency collecting various U.S. economy statistics. From the BEA’s website, find data for the most recent year available on U.S. exports and imports of goods and services. Is the United States running a trade surplus or deficit? Calculate the ratio of the surplus or deficit to U.S. exports.There are many people out there providing opinions on the economy. How can differences of opinion about economic policy recommendations be resolved?arrow_forwardAccording to the national savings and investment identity, if the government of the country of Apex were to run a larger budget deficit, then ... The trade surplus of Apex with its trading partners would increase Private firms could invest more in other countries. Investments in the country would increase Investment in the country may fallarrow_forward
- What is a foreign trade deficit or surplus? How does this affectinterest rates?arrow_forwardIf a country's economic data shows private savings of $400 million, government spending of $250 million, tax revenue of $400 million, and a trade surplus of $175 million, then what does investment equal? (Enter 1 for 1 million)arrow_forwardWhat is a national balance of trade? What does someone mean when he or she says that the balance of trade is favorable? Unfavorable? 2. What might be inferred if a nation has a continual deficit in its balance of payments? 3. What is an owner of a corporation called? What is the difference between a S- corporation and an C-corporation?arrow_forward
- The table below shows historical data on U.S. exports and imports of goods and services for five years. For each of these years, indicate whether the United States was running a trade surplus or deficit, and dollar amount of the surplus or deficit, and calculate the ratio as a percent of the surplus or deficit to U.S. exports. Instructions: In the event a deficit, do NOT include a negative sign (-) for either the dollar amount or the ratio (...% of exports). Enter your responses rounded to one decimal place. Year 1 2 3 4 LO 5 U.S. Exports (billions of dollars) 33.6 35.5 45.4 41.4 27.3 U.S. Imports (billions of dollars) 40.0 42.0 43.0 52.9 48.0 Surplus or deficit Deficit Deficit Surplus Deficit Deficit ▶ › ▶ Amount of surplus/deficit Surplus/ deficit as (billions of dollars) a percent of exports $ 6.4 19 6.5 18 2.4 11.5 20.7 $ $ 05 28 76 x % x % x % x %arrow_forwardA Senator announces his past support for protectionism. “The U.S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidize U.S. exports instead, we can reduce the deficit by increasing our competitiveness.” Using a three-panel diagram from Chapter 19 in the Mankiw textbook, show the effects of an export subsidy on U.S. net exports, national saving, domestic investment, net capital outflows, the interest rate, and the real exchange rate. Do you agree with the senator?arrow_forwardNational Saving - Investment = X - IM A country whose National Saving is greater than its Investment will experience a Trade deficit (IM > X) Balanced trade (IM – X) = 0 O Trade surplus (X > IM)arrow_forward
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