Question

Complete the following table, **then** do the
complete circular flow diagram for the first row of the table. You
**cannot** assume a balanced economy due to a trade
imbalance, you may however assume no government deficit or
surplus.(each row is independent)

Y |
C |
I |
G |
T |
S |
NX |
NCO |

8000 |
2100 |
600 |
600 |
750 |
|||

4500 |
1700 |
600 |
400 |

Answer #1

Working notes:

(i) Y = C + I + G + NX

(ii) Private saving (S) = Y - C

(iii) Public saving (Sp) = T - G

(iv) Total saving (St) = S + Sp = (Y - C) + (T - G)

(v) (S - I) = NX

(vi) NCO = NX

Therefore:

(1) When Y = 8000,

(a) NX = NCO = 750

(b) Therefore,

8000 = C + 2100 + 600 + 750

8000 = C + 3450

C = 4550

(c) S = Y - C = 8000 - 4550 = 3450

(2) When Y = 4500,

(a) 4500 = 1700 + 600 + G + 400

4500 = 2700 + G

G = 1800

(b) S = Y - C = 4500 - 1700 = 2800

(c) NCO = NX = 400

(d) NX = (Y - C) + (T - G) - I

400 = 2800 + T - 1800 - 600

400 = 400 + T

T = 0

Q3: Complete the following table. Hint: Start with the first
row.
Q (units)
TFC ($)
TVC ($)
TC ($)
AFC ($/unit)
AVC ($/unit)
ATC ($/unit)
MC ($/unit)
0
$1,800
–
–
–
–
1
$600
2
$400
3
$1,200
4
$2,800

1. The budget surplus is defined as taxes less transfers and
government purchases, T − G, where T is net taxation (taxes less
transfers) and G is government purchases. If the government has
collected more than it has spent, the term T − G is positive and
the budget is in surplus. If T − G < 0 then the budget is in
deficit. Recall that T and G are flows (as is GDP). The budget
deficit or surplus is...

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