Question

Consider the following definitions of saving. Match the formula to the correct type of saving. Y represents income, C represents consumption spending, G represents government spending, T represents taxes collected by the government.

a. Y-C-G
b. Y-T-C
c. T-G

Answer 1

The correct match for the types of saving and their respective formulas are: Y - T - C for personal saving and T - G for public saving. The formula Y - C - G is not standard in economic analysis.

Step-by-step explanation:

When examining the different formulas presented in the question, we can match each to the correct type of saving within the context of macroeconomic accounts:

• Personal Saving: The formula Y - T - C represents personal saving. It is the portion of disposable income (after taxes) that is not consumed.
• Business Saving: Although not explicitly mentioned, business saving can be derived from the income generated (Y) minus the consumption (C) and government spending (G), which is Y - C - G. However, this is not a standard economic term and is not generally used in macroeconomic analysis.
• Public Saving: The formula T - G represents public saving. It is the difference between tax revenue collected by the government (T) and government expenditures (G).

The correct type of saving is associated with each formula as follows:

1. Y - C - G is not a standard formula for any common type of saving in macroeconomics.
2. Y - T - C is associated with personal or private saving.
3. T - G is associated with public saving.

It is important to know that these formulas are components of the national savings and investment identity, which equates the total savings in an economy to investment, and may include other components such as trade deficit (imports minus exports).