Question

The following equation represents the Savings and Investment equation for the country of Mondobongo (all values are in billions of Fake Mon Bons): Private Savings + Inflow of Foreign Savings = Private Investment+ Government Deficit 15.0 + 45.0 = 130.0 + 0.0 What is the total quantity demanded of financial capital? What is the total quantity supplied of financial capital?

Answer 1

Demand for the financial capital is the investment + the government expenditure minus tax. Here only the one component investment is present. Therefore, the demand for the financial capital is 130.

Supply of the financial capital is savings is 130

15 plus 45 = 130 plus 0

The demand of the financial capital should always be equal to the supply of the financial capital

Demand = supply

Investment +government expenditure - tax = savings + trade deficit