Assume That an Economy Is Open to Capital Inflows and That

question 243

Essay

Assume that an economy is open to capital inflows and that the inflows are equal to imports minus exports (IM - X). Answer the following questions.
a. Budget balance = -$20; X = $60; IM = $90; Private saving = $150. Calculate investment spending.
b. Private saving = $200; Investment = $220; Budget balance = -$30. Calculate (IM - X).

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Definitions:

Opportunity Costs

The value of the best alternative foregone when a decision is made to pursue a particular action, essentially the cost of choosing one option over another.

Implicit Costs

The opportunity costs of using resources owned by the firm for its own production, instead of earning income elsewhere.

Explicit Costs

Direct, out-of-pocket payments made for the operation of a business, such as wages, rent, and materials.