Suppose that the economy of Stormwind has the following features: The level of p

Question

Suppose that the economy of Stormwind has the following features: The level of private saving is $200. The level of investment expenditure is $150. The level of exports is $100. The level of imports is $150. If Stormwind's economy is in equilibrium the level of public saving would be equal to $. (Round your response to the nearest dollar.) The level of public saving shows that the government in Stormwind has a budget. If the level of government purchases is $150 in Stormwind, the level of taxes must be $. (Round your response to the nearest dollar.)

Explanation / Answer

1)

At equilibrium, public savings plus private saving equal investment.

Thus, given the information, at equilibrium, public savings = investment-private saving= $150-$200 = -$50

2)

Net exports = Export-Import = $100-$150 = -$50

Since net export = public savings, the economy is in equilibrium

3)

Public savings = Tax – government spending

Substituting the given information,

-$50 = Tax - $150

Thus, Tax = $100

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