Question

In the small closed economy of san lucretia, the currency is the denar. statistics for last year show that private saving was 60 billion denars, taxes were 70 billion denars, government purchases of goods and services were 80 billion denars, there were no transfer payments by the government, and gdp was 400 billion denars. what were consumption and investment in san lucretia?

Answer 1

In San Lucretia, the consumption was calculated to be 270 billion denars and investment 50 billion denars, using the national income accounts identity for a closed economy.

Step-by-step explanation:

To calculate consumption and investment in San Lucretia, we can use the national income accounts identity, which in a closed economy without transfer payments is represented as GDP = Consumption (C) + Investment (I) + Government Spending (G).

Given that GDP = 400 billion denars, Government Spending (G) = 80 billion denars, and private saving (the part of income not used for consumption or taxes) is 60 billion denars, we can find consumption. Taxes (T) are 70 billion denars.

Using the identity for a closed economy without transfer payments (GDP = C + I + G), we know that private saving (S) is equal to investment (I) when the economy is closed (S = I), and public saving is T - G.

Public saving here is -10 billion denars (70 billion in taxes minus 80 billion in government spending), which indicates that the government is running a deficit and is not contributing to national saving.

Adding private saving (60 billion denars) and public saving (-10 billion denars) gives us the national saving, which in a closed economy equals investment. Therefore, Investment (I) is 50 billion denars.

Subtracting government spending and investment from GDP will give us Consumption (C). Thus, C = GDP - G - I = 400 - 80 - 50, which equals 270 billion denars.

Breakdown of Calculations

Government Spending (G) = 80 billion denars

Private Saving (S) = 60 billion denars

Taxes (T) = 70 billion denars

Public Saving = T - G = 70 - 80 = -10 billion denars

Investment (I) = Private Saving (S) = 60 billion denars

Consumption (C) = GDP - G - I = 400 - 80 - 50 = 270 billion denars

Answer 2

Consumption was 270 billion and Investments were 260 billion.

(All calculations shown in billions)

Consumption = GDP - Taxes - Private savings

400 - 70 - 60 = 270 billion

Investments = Consumption + (taxes- goods and services)

270 + (70-80)

270 - 10 = 260 Billion