Question

Consider the following data for a closed economy: Y $12 trillion C = $6 trillion 1- $3 trillion TR $1 trillion T $4 trillion Use the data to calculate the following. (Enter your responses as integers.) a. Private saving: $trillion.

Answer 1

The private saving of the closed economy is $3 trillion. The initial current account balance of the U.S. economy is -$100 billion, which would become -$150 billion if the investment rises by $50 billion while other factors remain constant.

Step-by-step explanation:

Calculating Private Savings and Current Account Balance

To calculate the private saving in a closed economy, we use the formula: Private saving = (Income (Y) - Taxes (T)) - (Consumption (C) - Transfer payments (TR)). Using the provided data: Private saving = ($12 trillion - $4 trillion) - ($6 trillion - $1 trillion) = $3 trillion.

In the case of the U.S. economy with a government budget deficit, current account balance is found using the national saving and investment identity, which states that National saving = Investment + Current account balance. Initially, the Current account balance = Total domestic savings - Total domestic physical capital investment = $1,500 billion - $1,600 billion = -$100 billion. If the investment rises by $50 billion and other factors remain constant, the new Current account balance would be = $1,500 billion - ($1,600 billion + $50 billion) = -$150 billion.