Finance Problem Set 6 2-1

1. Consider the Japanese economy over two periods of time: period 1 (today) and period 2 (the future). Suppose Japanese GDP today is $2,000 billion (we'll use $ rather than yen). Suppose Japan runs a current account surplus of 5% of GDP in period 1 and lends money at the market interest rate of 5%

A. What is the value of domestic spending (on C, I and G) in the first period?

B. What would be the value of domestic spending in Japan in period 2 if all period 1 loans are repaid with interest and no economic growth occurs between periods?

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Last Updated on 4/23/00