Begin with the formula showing how households can divide their ...

[ENagel]

Begin with the formula showing how households can divide their income. Then use this formula and the expenditure approach to GDP to show how investment is financed from three sources.
 
  What will be an ideal response?

Question 2

When the demand for a good is perfectly elastic, ________.
 
  A) total revenue is as large as possible
  B) the demand curve for the good is vertical
  C) the price elasticity of demand is infinite
  D) the price elasticity of demand is zero

[otokexnaru]

Answer to Question 1

The formula showing how households can divide their income is Y = C + S + T, where Y is income, C is consumption expenditure and T is taxes. According to the expenditure approach income, GDP = C + I + G + X  M. But income, Y, equals GDP. So, setting the equalities equal to one another and removing C since it is on both sides gives I + G + X - M = S + T. Moving G, X and M to the right hand side gives the final result: I = S + (T - G) + (M - X). Here we see that investment is financed by private saving, S, government saving, (T - G), and borrowing from the rest of the world, (M - X).

Answer to Question 2

C

[ENagel]

Excellent

[aliotak]

Thanks for the timely response, appreciate it