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