Economics 102 Homework #5

Economics 102

Spring 2012

Homework #5

Due 5/09/12(wed)

Note this is the last homework set for Econ 102, Spring 2012. You are almost there! (

Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly). Make sure you write your name as it appears on your ID so that you can receive the correct grade. Please remember the section number for the section you are registered, because you will need that number when you submit exams and homework. Late homework will not be accepted so make plans ahead of time. Please show your work. Good luck!

1. Write down your understanding and interpretation for each of the following equations, then make sure that you familiarize yourself with these formulas:

GDP = C + SP + (T – TR)

Total Income= Consumption Spending + Private Savings + Net tax payment

Alternatively, private savings in a closed economy can be expressed as total income plus government transfers minus taxes and consumption, SP =GDP + TR – T – C

GDP = C + I + G, in a closed economy

Components of GDP by expenditure in a closed economy:

GDP= Consumption Spending + Investment Spending + Government Spending

GDP = C + I + G + (X – M), in an open economy

Components of GDP by expenditure in an open economy: GDP = Consumption Spending + Investment Spending + Government Spending+ (Exports-Imports)

KI = M – X

Capital inflows is related to a country’s exports and imports: is the the negative of (X – M). A country that spends more on imports than it earns from exports must borrow the difference from foreigners. That borrowing is equal to the country’s capital inflow. This implies that a country’s capital inflow is equal to the difference between imports and exports, or KI=M-X.

SG = (T – TR) – G

Government budget balance is the difference between tax revenue...