Question

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

a. $5 billion and $50 billion
b. $5 billion and $45 billion
c. -$5 billion and $50 billion
d. -$5 billion and $45 billion

Answer 1

The correct answer is option a.

Step-by-step explanation:

A closed economy does not get involved in international trade. So there are no exports and imports in such an economy. The investment in such an economy is equal to the total saving, including both public as well as private.

In the given example, the investment in the economy is $50 billion.

This means that national saving is $50 billion as well.

Out of this $50 billion, the private saving is $45 billion.

So the public saving will be

= National saving - Private saving

= $50 billion - $45 billion

= $5 billion