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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.]

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thaovtp1407

Answer:

Private saving : 1.8

The investment spending:  1.5

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

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