Final answer:
In a closed economy with income of $1000, government spending of $200, taxes of $150, and investment of $250, private saving is calculated as the sum of investment ($250) and the government's budget deficit (-$50), resulting in private saving being $300.
Step-by-step explanation:
To calculate private saving in a closed economy, we need to use the formula:
Private Saving = Income - Taxes - Consumption
However, we are not directly given the consumption in the problem, but we can calculate it using the equation for national saving in a closed economy:
National Saving = Private Saving + Government Saving (which is also the budget surplus)
And since National Saving is also equal to investment in a closed economy, we can equate investment to the sum of private and government saving.
Lets first calculate the government's saving:
Government Saving (Budget Surplus) = Taxes - Government Spending
Government Saving = $150 (Taxes) - $200 (Government Spending) = -$50
Since Government Saving is negative, it is actually a budget deficit.
Now, we use the investment amount given to find the private saving, knowing that National Saving = Investment:
$250 (Investment) = Private Saving - $50 (Government Saving)
Private Saving = $250 + $50
Private Saving = $300
Thus, the private saving in this closed economy is $300.