Question

Suppose investment is $1,100 billion, private saving is $1,050 billion, and capital inflow from abroad is $100 billion. Solve the government budget deficit in the case.

Answer 1

Anoveoswer:

The government deficit is $150 billion

Explanation:

Current Account (CA)  = Savings(S) -Investment(I).

Current account (CA)  is also conventionally defined as (X-M) (value of exports – value of imports) + Net income from abroad. (R)

CA = (X-M) + (R)

In this case CA= $1050 billion - $1100 billion

                      CA= -$50 billion

Therefore CA = (X-M) + (R)

           - $50 billion = x + $100 billion

       X-M= -$100 billion + -$50 billion=  -$150 billion