Question

suppose the u.s. has a closed economy with gdp (y) equal to $19.2 trillion, consumption (c) equal to $12.4 trillion, government spending (g) equal to $3.0 trillion, transfer payments (tr) equal to $1.4 trillion, and taxes (t) equal to $3.1 trillion. what is public savings

Answer 1

Public savings can be calculated by subtracting government spending from taxes; in this case, U.S. public savings is $100 billion, indicating a surplus.

Step-by-step explanation:

Public savings in a closed economy can be calculated by the formula public savings = Taxes (T) - Government Spending (G). With the given numbers, the public savings would be the difference between $3.1 trillion in taxes and $3.0 trillion in government spending, resulting in public savings of $0.1 trillion or $100 billion. It is essential to understand that when a government spends more than it receives in taxes, public savings are negative, which indicates a budget deficit. Governments must then borrow to cover the shortfall, making them demanders of financial capital.

In this scenario, however, the U.S. has a positive amount of public savings since it is collecting more in taxes than it is spending, contributing to the overall savings in the economy. This could be used for investment or paying down existing debt.