Question

Using the equation national saving (S) = investment () + net export (NX) and the definition of private saving (S = YCT) and public saving (Sg-TG) explain how the Koran trade deficit (negative NX) had increased in 1997 causing the financial crisis (5 points)

Answer 1

ANS - According to this equation ,

Saving = Investment + Net exports

Show's that the economy's net export must be equal to the difference between saving and investment .

Net export = Saving - investment

And when investment is more than savings than planned stock rises above the desired level due to less consumptions .

To calculate investment,

The GDP formula is used whch states Total Output / GDP(Y) is equal to consumption (C) + Investment =Government spending (G) = Net exports (NX)

Y= C+1+G+NX

NX= X-M

So , according to this equation

Definition Of Private Saving

Private saving is equal to the sum of household and bussiness saving . Hence , high savings ,means more money for investment in the economy.

Private Saving = Household saving + business sector saving

Formula , S= Y - T - C

where , s = private saving

y = aggregate income (GDP)

T = tax revenue

C = consumption

Definition of Public Saving

Public saving also known as the budget surplus is the term (T-G-TR) which is government revenue through taxis minus government expenditure on goods and services minus transfer . It is also called government savings .

so , National Saving = Private saving + Public saving

= ( Y-T) -C +T-G

= Y-C-G

= SP+SG

Accoring to this equation , when the economy expereinces a fiscal deficit (G<T) and a Trade deficit (X<M) or 'twin deficit'.

net private savings (s-10) is negative .

It means domestic private savings are not sufficient for domestic private investment (S<1) . Hence ,the country must take loans from foreign companies . Through which foreign capital shoul inflow and capital amount should be deficit .

So , trade deficit has increased in 1997 which are following :

Koran Trade deficit means when the imports of koran exceeds from its import .

1 - In 1950 , the koran was broke out , which destroyed more than two third of the nation's production facilities and infrastructure .

2 - It's trade policy had shifts from import substituton to globalisation .

3 - After this , foreign assistance was allowed only for the import of basic goods for survive not for growth of the economy .

4 - Their exports are minimum .

5 - For earning , koran sale various national resources but their earning was small . There are no trade policy .

Conclusion - After the war , the korean trade policy go to diminishing whih adversely affect theie finance . Koran had faces many financial problems at that time . But after that US helps them for growth and development of industrial sector .