question archive You are given the data below for 2008 for the imaginary country of Amagre, whose currency is the G

You are given the data below for 2008 for the imaginary country of Amagre, whose currency is the G

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You are given the data below for 2008 for the imaginary country of Amagre, whose currency is the G.

• Consumption 350 billion G

• Transfer payments 100 billion G

• Investment 100 billion G

• Government purchases 200 billion G

• Exports 50 billion G

• Imports 150 billion G

• Bond purchases 200 billion G

• Earnings on foreign investments 75 billion G

• Foreign earnings on Amagre investment 25 billion G

 

Given this information we are asked to compute net foreign investment. Some of us are taking earnings on foreign investments - Foreign earnings on Amagre investment = 50 billion G. And others are citing the NFI formula and subtracting imports from exports to get -100 billion G. Which would be correct and why?

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The correct one is Foreign earnings on Amagre investment = 50 billion G.

Because subtracting imports from exports is Net exports which is used in calculation of GDP as per expenditure method.