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Assume an open economy in which GDP is $12 trillion. If consumption is $8 trillion, government spending is $2 trillion, taxes are $0.5 trillion, government transfers are $0, exports are $1 trillion, and imports are $3 trillion, what is investment spending?

Answer :

In the given open economy scenario with a GDP of $12 trillion, consumption of $8 trillion, government spending of $2 trillion, taxes of $0.5 trillion, government transfers of $0, exports of $1 trillion, and imports of $3 trillion, the investment spending is $2.5 trillion.

Investment spending can be calculated using the formula: Investment = GDP - Consumption - Government Spending + Taxes + Government Transfers + Net Exports. In this case, we have GDP = $12 trillion, Consumption = $8 trillion, Government Spending = $2 trillion, Taxes = $0.5 trillion, Government Transfers = $0, Exports = $1 trillion, and Imports = $3 trillion.

Substituting the values into the formula:

Investment = $12 trillion - $8 trillion - $2 trillion + $0.5 trillion + $0 + ($1 trillion - $3 trillion)

Investment = $2.5 trillion

Therefore, the investment spending in this open economy is $2.5 trillion.

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