Question

2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $1,025 milion. Enter the amount for investment. Complete the following table by using national income accounting identites to cakcubte national saving. In your calculations, use data from the preceding table. National Saving (S) mition Complete the following table by using national income accounting identities to calculate national saving. In your catculations, use data from the preceding table. National Saving (S)= Complefe the following table by using national income accounting identities to calculate private and public saving. in your cakculations, use data from the initial fable. Prikate Satring = Poblic Sacing =− milion = Based on your calculations, the government is running a badget

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Answer 1

To calculate national saving given GDP, the formula S = SH + (T-G) in a closed economy is used, where S is total saving, SH is private household saving, T is tax revenue, and G is government spending. Without detailed data, specific amounts cannot be computed. In an example with given data, the U.S. would have a current account deficit that can increase if investment rises and other factors remain constant.

Step-by-step explanation:

The national saving and investment identity for a closed economy states that total saving (S) must equal total investment (I). When the economy has a government budget deficit, national saving is the sum of private saving (SH) and government saving (T-G, which is negative when there is a deficit). Given a GDP of $1025 million, and assuming there is no detailed data on taxation, government spending, private saving, or investment in this scenario (as the detailed numbers for SH, T, G, and I are not provided), we need this information to calculate the exact amounts. However, the general formula for national saving in a closed economy is S = (SH + (T-G)) and investment is typically represented as I = S in a closed economy.

Using the example from a different scenario where the U.S. economy has a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion, the current account balance would be negative, indicating a current account deficit of $100 billion. If investment increases by $50 billion while national savings and the budget deficit remain the same, the current account deficit would then increase to $150 billion.

Answer 2

In this closed economy, national saving (S) is $225 million, calculated as the difference between GDP and consumption plus government spending. Private saving is -$75 million, indicating dissaving, while public saving is $150 million, showing a government surplus.

Step-by-step explanation:

In this hypothetical closed economy with a GDP of $1,025 million, the calculation of national saving (S) is crucial in understanding the overall economic dynamics. National saving is derived by subtracting both consumption (C) and government spending (G) from the gross domestic product (GDP). In this case, with a GDP of $1,025 million and consumption amounting to $800 million, the resulting national saving is $225 million. This signifies the portion of income that remains unspent by either households or the government and is available for investment or future use.

Delving further into the private and public saving components provides additional insights. Private saving (Sp) is computed by subtracting taxes (T) from the sum of GDP and consumption. With taxes at $300 million and consumption at $800 million, private saving is calculated as -$75 million, indicating dissaving or a deficit in the private sector.

On the other hand, public saving (Sg) is determined by the difference between government revenue (taxes) and government spending. In this scenario, a positive public saving of $150 million signifies a government surplus. Therefore, the negative private saving implies that the private sector is spending more than its income, while the government is operating with a surplus.