Question

Suppose GDP equals $10 trillion, consumption equals $6.5 trillion, the government spends $2 trillion and has a budget deficit of $300 billion. Assume a closed economy. Find the private saving and the investment spending.]

Answer 1

Private saving : 1.8

The investment spending: 1.5

Step-by-step explanation:

Given:

• GDP (Y) = $10 trillion
• Consumption (C) = $6.5 trillion
• Government spends (G) = $2 trillion
• Budget deficit (G - Tax) = f $300 billion = 0.3

We have public saving: G - Tax = 0.3 trillion

Tax = G - 0.3 = 2 - 0.3 = 0.7 trillion

Private saving = Y – T – C = 10 – 1.7 – 6.5 = 1.8 trillion

National saving = Y – C – G = 10 – 6.5 = 2 = 1.5 trillion

Investment = national saving = 1.5 trillion