Kyiv National Economic University named after Vadym Hetman

Philipps-Universität Marburg

Home task №5
Discipline: International economy
Exercise 1

By 2nd year student, faculty of International Economics and Management

Polina Kamenchuk,
group IE-210i

05.10.2022
Exercise 1

Data:
Hypothetical economy is characterized by the following parameters:
C (Domestic consumption) = 1500 units;
I (Domestic investment) = 300 units;
G (Government spending) = 100 units;
NX (Net exports) = 30 units;
FT (Foreign trade) = 200 units.

Is the country's economy open?

Solution:
Let's write formulas of national output in closed economy and in open economy:
Formula of national product produced in a closed economy: Ya = C + I + G
Formula of national product produced in the open economy: Yo = C + I + G + NX

Then, we calculate national output of a given economy:

Y = 1500 + 300 + 100 + 30 = 1930 units

Let’s find export from formulas of net export and foreign trade
Net export (NX) = X - M
Foreign trade (FT) = X + M
NX + FT = (X - M) + (X + M)
NX + FT = 2X
X = (FT + NX) / 2 = (200 + 30) / 2 = 115

Now that we have exports, we can count interest rate for export, by finding export-to-GDP
ratio, which measures the degree of openness of the commodity market and the market of
services:
𝒓𝑬𝒙𝒑 = (M / Y) / 100% = (115 / 1930) / 100% = 5,96% or 6%

Answer:
Export-to-GDP measures the degree of openness of the commodity market and the market
of services. Its value indicates the country's place in the world market of the seller. In our
case it equals 6% and it’s < 10%, therefore the country's economy is closed.