Question

In: Economics

1. If, for an imaginary closed economy, investment amounts to $12,000 and the government is running...

1. If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving be equal to?

2.In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25. Private savings is equal to [_______] and investment is equal to [______]

Group of answer choices

300...25

300...225

100....100

75....100

3. Suppose Intel (a U.S.-owned company) builds a factory in Taiwan to produce processor chips. What is this an example of?

Group of answer choices

Inward-oriented policies

Foreign portfolio investment

Foreign direct investment

Crowding out

Expert Solution

1) Total investment = $12,000

We know that actual Investments = actual Savings

Also, Private savings + government surplus or (deficit) = Investments (Formula)

Private savings = 12000 - ( - 2000 )= 12000 + 2000 = $14,000

Therefore private savings is $14,000

2) GDP = Consumption expenditure + Investments + Government spending (For a closed economy)

1000 = 700 + 200 + Investments

Therefore investments = 1000 - 900

Investments = $100

Government surplus = Taxes - Government spending

25 = Tax - 200

Therefore Taxes are at $225

Private savings = Income - consumption - Taxes

Private savings = 1000 - 700 - 225

Therefore Private savings is $75

Thus, Investments are $100 and private savings $75.

3) Answer: Foreign Direct Investment

It is investment made by a firm belonging to a nation with interest of conducting production and business operations in an other country. FDI are not to be confused with Foreign Portfolio Investment as Portfolio investment deals in buying up stocks and shares of a company in an other nation, thereby taking part in their business operations and sharing profits.

FDI involves capital investment and inflow into a country, such as the above case of setting up factories in Taiwan by an American Company.

Rahul Sunny answered 8 months ago

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