An economy recently had 800 billion euros of savings and 600 billion euros of net capital...

An economy recently had 800 billion euros of savings and 600 billion euros of net capital outflow. What was its investment? What was the quantity of loanable funds supplied?

Expert Solution

The national or overall savings in the economy or S has been given as 800 billion Euros and the net capital outflow in the economy or NCO is 600 billion Euros. Now, NCO can be mathematically calculated as the difference between the overall foreign assets acquired by the domestic residents in the economy and the total domestic assets acquired by the non-residents or the foreign residents. Let the investment level in this economy be denoted as I. Based on the mathematical equation showing the savings-investment identity or relationship, S=I+NCO

Therefore, based on the mathematical equation representing the savings-investment relationship or identity, it can be stated, in this case:-

S=I+NCO

800 billion=I+600 billion

800 billion-600 billion=I

200 billion=I

Hence, the investment level in this economy was 200 billion Euros.

The national savings in the economy is 800 billion Euros implying that 800 billion Euros is available to be supplied or funded as financial loan to liquidate or finance the overall investment spending or expenditure in the economy. Therefore, the overall or total supply of loanable funds in the economy would also be 800 billion Euros, in this particular instance.

Rahul Sunny answered 2 years ago

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