Hi Can anyone solve this questions Answers can only be 23 li

Hi, Can anyone solve this questions? Answers can only be 2-3 lines maximum

a) Show that open economies can save via enlarging capital stock, or by acquisi- tion of foreign assets. b) Taxes and government purchases are in balance, private savings are zero. What does this imply regarding the current account and investments?

Solution

a] An open economy can buy and sell assets in the financial markets, generating flows of capital.When the net capital outflow is positive, domestic residents are buying more foreign assets than foreigners are purchasing domestic assets hence this situation also leads for a country to save.

S = I + NX = I + NCO

where

S = savings
I = domestic investment
NX = net exports
NCO = net capital outflows

If a country can enter into trade surplus with other country then exports> imports, NX>0 , NCO>0 then S>I.

2] Here if taxes are not less than govt purchases which means govt is not in deficit but neither it exceeds govt purchases so we can say govt is neither in deficit nor in surplus situation. At the same time when we say that private saving is zero it means its not exceeding investments so private sector to neither in deficit nor surplus. so public and private sector are in balance. Therefore we can say current account and investments are also in balance.