1. A country's private savings equal 600 dollars, its government budget surplus equals 200 dollars, and its trade surplus equals 100 dollars. How much private investment is there in this economy?

2.Assume a 1,000-dollar budget surplus, 4,000-dollar private savings, and 5,000-dollar investment.

For this economy, createh a national saving and investment identity.

What will the trade balance in this economy be?

What is the new balance of trade in this country if the budget surplus turns into a budget deficit of 1000, and private saving and investment remain unchanged?

3. In the late 1990s, the US government went from a budget deficit to a budget surplus, while the US economy's trade imbalance rose significantly. What can you say about the direction in which saving and/or investment must have changed in this economy using the national saving and investment identity?

4. Consider an economy where Ricardian equivalence exists. This economy has a 50-point budget deficit, a 20-point trade deficit, 130-point private savings, and 100-point investment. How are the other variables in the national saving and investment identity changed if the budget deficit climbs to 70 percent?

5. Why have many education experts recently focused on changing the incentives that schools in the United States face rather than increasing their budgets? List some of the ways in which educational incentives may be changed without supporting any of these recommendations as particularly excellent or terrible.

6. What initiatives can the government take to promote research and development?

7. What are the three ways the macroeconomy might react to higher government budget deficits based on the national saving and investment identity?

8. How do you think higher budget deficits would effect private sector physical capital investment? Why?

9. Under what conditions will a larger budget deficit cause a trade deficit?

10. What is Ricardian equivalence theory?