Question 05 In the open-economy macroeconomic model, the market for loanable fun

ID: 1129489 • Letter: Q

Question

Question 05 In the open-economy macroeconomic model, the market for loanable funds equates national saving with: a. Domestic investment (T) plus net capital outflow (NCO) b. Net capital outflow (NCO) c. National consumption (C) minus domestic investment (1). d. None of the above. Table 01: Purchasing Power Table Currency per Country Price U.S. Price Index ountr 80 100 German Euro Yen 200 200 8000 900 1200 rabi Venezuela Bolivar Question 06. Using Table 01, which country(ies) in the table does purchasing-power parity with the U.S. hold? a. Germany and Japan. b. Japan and Saudi Arabia. . Britain and Venezuela. d. Germany

Explanation / Answer

Answer:- in the open economy macroeconomic model the market for loanable funds equates national saving with

Correct Answer:- domestic investment(I) plus net capital outflow

Reason:- In the open-economy macroeconomic model, the market for loanable funds identity can be written as. S = I(Investment) + NCO(Net Capital Outflow)

Answer:-

The formula for the PPP = (Price in domestic county/Price in Foreign country)

So the table can be rewritten as below:-

Country

Currency

Currency per U.S. Dollar

U.S. Price Index

Country price index

PPP = (Price in domestic county/Price in Foreign country)

Britain

Pound

0.6

200

120

0.6

Germany

Euro

0.8

200

Japan

Yen

100

200

18000

Saudi Arabia

Reyal

200

900

4.5

Venezuela

Bolivar

200

1200

Thus from above table, it is clear that only Britain and Venezuela have PPP with the USA.

So the correct answer:-C:- Britain and Venezuela

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