Question

Suppose real GDP is $5,059 billion, taxes collected by the government are $508 billion, government spending is $693 billion, and consumption spending is $3,884 billion. This is a closed economy. What is the value of private saving?

Answer 1

Private saving is calculated using the formula S = Y - C - T, where S is private saving, Y is GDP, C is consumption, and T is taxes. With the given data, private saving is found to be $667 billion in this closed economy.

Step-by-step explanation:

The value of private savings in the economy can be determined using the national income identity for a closed economy, which is given by the equation GDP = C + I + G where C is consumption, I is investment, and G is government spending. Since we have the values for GDP, C, and G, we can rearrange the equation to solve for I (investment).

To begin with, the formula for private saving is S = Y - C - T, where S is private saving, Y is income (or GDP in this case), C is consumption, and T is taxes. Given that real GDP (Y) is $5,059 billion, consumption spending (C) is $3,884 billion, and taxes (T) are $508 billion, we can substitute these values into the equation to find private saving.

Private saving is then calculated as:

S = $5,059 billion - $3,884 billion - $508 billion

S = $667 billion

Therefore, the value of private savings is $667 billion.