1.In a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private investment in this economy?

2.Assume an economy has a budget surplus of 1,000, private savings of 4,000, and investment of 5,000.

1. Write out a national saving and investment identity for this economy.
2. What will be the balance of trade in this economy?
3. If the budget surplus changes to a budget deficit of 1000, with private saving and investment unchanged, what is the new balance of trade in this economy?

3.In the late 1990s, the U.S. government moved from a budget deficit to a budget surplus and the trade deficit in the U.S. economy grew substantially. Using the national saving and investment identity, what can you say about the direction in which saving and/or investment must have changed in this economy?

4.Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to 70, how are the other terms in the national saving and investment identity affected?

5.Why have many education experts recently placed an emphasis on altering the incentives that U.S. schools face rather than on increasing their budgets? Without endorsing any of these proposals as especially good or bad, list some of the ways in which incentives for schools might be altered.

6.What are some steps the government can take to encourage research and development?

7.Based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?

8.How would you expect larger budget deficits to affect private sector investment in physical capital? Why?

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

10.What is the theory of Ricardian equivalence?

11.What does the concept of rationality have to do with Ricardian equivalence?

12.What are some of the ways fiscal policy might encourage economic growth?

13.What are some fiscal policies for improving a society's human capital?

14.What are some fiscal policies for improving the technologies that the economy will have to draw upon in the future?r