Chapter 12

Question 1

What formula would you use to calculate final domestic demand or the GDP of an isolated economy?

Answer 1

Y = C + I + G
S = I
you exclude imports and exports

S = national savings

Question 2

What is the supply of the loanable funds market?

Answer 2

savings

Question 3

What are the formulas for an open economy model?

Answer 3

Y = C + I + G + (X - M)
S = I + (X - M)

S = I + Foreign Net Investment

I = domestic investment

You can substitute net exports for net foreign investment

Question 4

What happens if savings falls?

Answer 4

Investment has to fall and/or Net foreign investment has to fall